There's a fatuousness right now to the rally that isn't just about how the direction of the entire market seems so out of sync with the nation's record joblessness. Oh, it's not something worth selling everything for. It's much more a series of annoyances that aren't disciplined and, ultimately, could prove to be reckless. Let's call them peeves, until there are so many that they are something larger and more nefarious to the bull.
First, hardly a day goes by when some analyst doesn't raise his or her price targets for a handful of stocks. I will mention two that I like very much so no one thinks I am bashing anyone: Square (SQ) and PayPal (PYPL) . Both of these fine companies are truly coming to the fore here, Square because of its creative ways it helps small and medium sized business centered around point of sale technology and PayPal because of its incredible digital and mobile payments platform.
PayPal's stock is up 57% this year and is now valued at $200 billion. Square's rallied 66% and is worth $45 billion.
Now if you called on the Lightning Round of Mad Money and asked me about what I thought of these companies I would have to say they are best of breed of the new world. But here's what I would not have time to say: I worry that they just go up and up for the same reasons: price-tag boost upon price-tag boost. I don't have even an inkling that they are going up because of earnings or even sales. It would be terrific to see that real take-off but what's been the reality here? When Square reported in May it missed the gross payment volume estimate, had a slight beat in revenues, and missed the earnings estimate by a mile, 2 cents versus 10 cents. It also pulled its guidance. For that, the stock's been rewarded with a dramatic move upward, $63 to $104.
No one has been a bigger supporter of PayPal than me. No one. But I am conscious that when it reported last, it, too, missed on the volume numbers, missed on the revenue numbers and announced a 66 cents worth of earnings when Wall Street was looking for 75. It was a whiff. And it, too, pulled guidance. I promptly explained the disappointing report away as a speed bump and a buying opportunity. I was right. The stock has gone from $128 to $170.
But now what? I will tell you what. The analysts who have not yet had a chance to lift their price targets will concoct some reason to do so and the buyers will pile in again ON THE SAME ESTIMATES! To some that's price -to-earnings multiple expansion but to me that's just greater fool theory. I am torn, myself, what to say here. If the stocks were to come down perhaps that would make the process easier but then you would lose the principal prop you need here, the price target boost. So, I watch helplessly as they are bid up day after day on nothing substantive and that has never ended well unless there was a takeover bid or a shocking acceleration in earnings.
I am thrilled that there are a lot of new traders coming into the market. I am thrilled because I am hoping to try to transform them into investors so this doesn't all end in tears as my great friend Lee Cooperman recently said on my friend Scott Wapner's show. But so far I have not seen much evidence of genuine study time being put in. I see much more of a herd mentality. Here's what's the shame about that: Until recently I could understand why someone would be turned off by buying some Amazon (AMZN) or some Facebook (FB) or even some Apple (AAPL) . The dollar size, no split, whatever. So, these traders were drawn to low-dollar stocks that often are failing enterprises or names with no real enterprise at all. But now we have these fabulous fractional shares, just a terrific invention. There's no need for these low-life dollar stocks. Stocks don't go to a dollar because they are good; they go because they are bad. No CEO wants her stock at a dollar.
So, until I see a change in what kinds of stocks are being bought or pushed or manipulated on Twitter, just call me troubled and concerned.
Price targets and promoters. Two worrisome signs. You get enough of them and you know the party's almost over.