Sure, I would like fewer bulls and a few weeks' worth of stories about how President Obama and the Tea Party-driven Congress hate each other more than ever, as that should certainly do the trick. The drumbeat of Washington horror has been put on hold until December, when talks of some sort will begin anew. We have seen it over and over again since this president was elected. You get a calm, like we are in now, during which the averages advance and even get giddy. Then comes a storm, when Washington can't agree to anything except to hate, and the bears gather steam and the market pulls back again until there is some bogus, can-kicking resolution.
But, sorry, I simply refuse to buy into the notion that it's "bad" now that the public has stopped pulling money out of the market, and has now put back in about one-sixth of what it has pulled out.
First, it's way too glib to rely on these figures. When you literally take away any inflation-adjusted return for any other investment, you would think that some money has to come toward stocks, wouldn't you? Don't you find it more than happenstance that this period coincides with the rollover of hundreds of billions of dollars in CDs done at much higher levels vs. those of five years ago? It's a "no alternative but" scenario, if you ask me.
Second, these kinds of stories pack a great deal more punch when they are backed up by evidence that merchandise -- other than a red-hot initial public offering -- is historically expensive. But I wouldn't regard a forward price-to-earnings ratio of 14.7 as expensive. Think about the report period we just went through. The vast majority of companies that I follow issued numbers that caused you to raise forecasts.
Plus, many U.S. companies are internationally exposed now. So if you adjusted for the wild currency swings -- which have made the dollar much stronger than we had thought at this time last year -- you would see that stocks are actually a lot cheaper than what that multiple would suggest. True, last year the multiple was lower, at 12.6. But, when you consider the damage that the debate over the fiscal cliff caused, in addition to the Washington sandwich of sequester, you had to anticipate a shrinking multiple at that time.
How about the IPO market? Yes, plenty of companies are coming now, and there are real sectors of overvaluation, especially in the biotech cohort. However, every time we chastise people for getting too enthusiastic, we have to remember that Celgene (CELG), Gilead (GILD), Regeneron (REGN) and Biogen Idec (BIIB) are among the best performers in the entire stock market -- up 89%, 83%, 65% and 61%, respectively. So, to me, it would make sense to try finding something that looks like these winners, especially on a day when still one more expensive junior biotech, Viopharma (VPHM) gets a bid, on top of the gigantic Santarus (SNTS) bid we caught Friday. You want to tell people not to play that group and instead to focus on the endless parade of master limited partnerships?
Oh, and as for the bubble in bonds, what do you expect? The Federal Reserve created a world where companies can refinance so that they can grow and hire -- and I think most of us would agree that, if you changed the tax code, they would actually start hiring in the U.S. with alacrity. But that would involve compromise, so forget about it.
Too many follow-on offerings? What's that complain about? You want bankruptcies of highly indebted private-equity deals? I would prefer the solvent trail that these follow-ons insure.