Last Week's Benchmarks That Mattered
The Dow and the S&P hit all-time highs last week. How much does it matter?
On the one hand, we must concede that hitting new highs shows strength. On the other, we remember that we're in the midst of the second-longest stock bull-market ever. And that keeps some of us wondering whether these new highs signal continuing strength, or mark the high before the inevitable turn.
You're not alone if you think this way. It's only natural. How long can this keep going on? That's the question that lingers in the back of so many minds, including many professional investors.
So powerful and surprising has this bull been, that we've just recently witnessed what can only be described as an almost shocking change in thinking by two individuals whose work has served to temper their endorsement of this raging bull - until now. Robert Shiller, whose well-followed CAPE Index continues so show an overvalued stock market, has announced that he now believes this bull has not months, but years to run. A bit surprising, if not shocking.
On the other hand, Jeremy Grantham, value investor par excellence, has recently announced his belief that waiting for the values of this stock market to correct to long-term averages may be a waste of time and money. While he hasn't jettisoned his belief in "reversion to the mean," what he seems to have done is upped the historic mean. That's a bit shocking. He has his reasons, but there's a sort of leap involved here. He's not using the statistics of past performance to find that magical mean going forward. He's apparently upping that mean by some "new" factors that will change the way we value stocks and the stock market from now on.
We won't discuss here the various reasons these two gentlemen have proferred to justify their claims. But it's worth noting that bull markets have historically caused even the most wise and rational minds to sense that somehow "this time it's different." Indeed Grantham, no fool and fully aware of this phenomenon, has nevertheless made the claim that this time it indeed is different. That may be the reason I think his announcement was shocking. Who would have ever thought they'd hear Mr. Grantham say "This time it's different"?
For my own part, having seen such claims throughout history, as well as in in my own experience, ultimately turn out to be wrong, I'm withholding any acceptance of this one, even though it comes from such an esteemed source. To be clear, this guy's a lot smarter in these matters than I, so I'm not going to argue with him on the merits of his claim. It's just that, when it comes to "This time it's different," even the best and brightest have turned out to be - sometimes famously - deceived.
And so we take the new highs in the two venerable benchmarks with a grain of salt, preferring to keep our emotions subdued when it comes to stocks.
But there was one benchmark that did create some excitement for many of us last week: Summer has finally arrived. And that means vacations will commence in earnest, creating a bit of a respite for most of us. For those of us in business, the respite comes from two directions: first, the sane among us will do our best to try and get away, best we can, from the day-to-day operations; second, with clients and customers seeking their own respite from their everyday work, we'll likely see some easing the usual daily activities. (Of course, those who work in resorts or others parts of the "vacation industry" will likely find no respite. But that's their problem, right?)
On top of the arrival of summer, next week brings us the 4th of July, the traditional "official" beginning of vacation time. Of course, it's not like "the old days" when millions of Americans worked in factories that closed for, typically, two weeks during July or August, "forcing" workers to take their paid vacations. People do have more flexibility these days. Still, most of us do look forward to some fun in the sun during July and August.
So while the action in the markets leaves us a bit staid and emotionally dry, summer's arrival surely brings it's special brand of excitement - and right on schedule. Now there's a benchmark that really matters!
On the one hand, we must concede that hitting new highs shows strength. On the other, we remember that we're in the midst of the second-longest stock bull-market ever. And that keeps some of us wondering whether these new highs signal continuing strength, or mark the high before the inevitable turn.
You're not alone if you think this way. It's only natural. How long can this keep going on? That's the question that lingers in the back of so many minds, including many professional investors.
So powerful and surprising has this bull been, that we've just recently witnessed what can only be described as an almost shocking change in thinking by two individuals whose work has served to temper their endorsement of this raging bull - until now. Robert Shiller, whose well-followed CAPE Index continues so show an overvalued stock market, has announced that he now believes this bull has not months, but years to run. A bit surprising, if not shocking.
On the other hand, Jeremy Grantham, value investor par excellence, has recently announced his belief that waiting for the values of this stock market to correct to long-term averages may be a waste of time and money. While he hasn't jettisoned his belief in "reversion to the mean," what he seems to have done is upped the historic mean. That's a bit shocking. He has his reasons, but there's a sort of leap involved here. He's not using the statistics of past performance to find that magical mean going forward. He's apparently upping that mean by some "new" factors that will change the way we value stocks and the stock market from now on.
We won't discuss here the various reasons these two gentlemen have proferred to justify their claims. But it's worth noting that bull markets have historically caused even the most wise and rational minds to sense that somehow "this time it's different." Indeed Grantham, no fool and fully aware of this phenomenon, has nevertheless made the claim that this time it indeed is different. That may be the reason I think his announcement was shocking. Who would have ever thought they'd hear Mr. Grantham say "This time it's different"?
For my own part, having seen such claims throughout history, as well as in in my own experience, ultimately turn out to be wrong, I'm withholding any acceptance of this one, even though it comes from such an esteemed source. To be clear, this guy's a lot smarter in these matters than I, so I'm not going to argue with him on the merits of his claim. It's just that, when it comes to "This time it's different," even the best and brightest have turned out to be - sometimes famously - deceived.
And so we take the new highs in the two venerable benchmarks with a grain of salt, preferring to keep our emotions subdued when it comes to stocks.
But there was one benchmark that did create some excitement for many of us last week: Summer has finally arrived. And that means vacations will commence in earnest, creating a bit of a respite for most of us. For those of us in business, the respite comes from two directions: first, the sane among us will do our best to try and get away, best we can, from the day-to-day operations; second, with clients and customers seeking their own respite from their everyday work, we'll likely see some easing the usual daily activities. (Of course, those who work in resorts or others parts of the "vacation industry" will likely find no respite. But that's their problem, right?)
On top of the arrival of summer, next week brings us the 4th of July, the traditional "official" beginning of vacation time. Of course, it's not like "the old days" when millions of Americans worked in factories that closed for, typically, two weeks during July or August, "forcing" workers to take their paid vacations. People do have more flexibility these days. Still, most of us do look forward to some fun in the sun during July and August.
So while the action in the markets leaves us a bit staid and emotionally dry, summer's arrival surely brings it's special brand of excitement - and right on schedule. Now there's a benchmark that really matters!
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