Fear gives way to Greed--1/12/2018

In the last newsletter, I wrote an article entitled "A Shift to Greed."  In it, I noted that I am sensing a change in investor behavior from fearful to greedy and that it was something to keep an eye on.  Well, right now, I am certain that Greed is fully on the move towards overwhelming the market; the signs are everywhere.  What does that mean for the market?  Well, I actually wrote a report back in 2013, called "The Path to Reflexivity", and in it I talked about this moment.  Here is an excerpt:

"I believe the markets will rebound and continue their upward trend.  Valuations are not too high, earnings are not too far above trend, banks are ready to lead the economy higher with further lending, and Consumer Sentiment has a lot of room to run to the upside.  In fact, I believe each and every one of those points will feed off of each other to potentially push the markets to a “rational” high.  “Rational” highs have historically registered 20 times earnings ratios.  Using the S&P’s own Howard Silverblatt’s earning’s estimate of $124.73, that would put the S&P 500’s price level at 2,494, which represents about 50% upside from current market levels.

This is when we need to have our eyes and ears open for signs of “Irrational Exuberance” or, as I tag it, a Reflexive Bull Market.  Frankly, history shows that if this were to occur the gains within the markets could be mind-numbing and almost surreal.  I debated including the numbers that history suggests the S&P 500 could get to, but I’ve opted to not do that (even though all you have to do is apply the Reflexive Bull Market P/E ratio to future potential earnings levels to derive that number).  Nevertheless, this potential occurrence will be a number of years down the road and I don’t think it is necessary to discuss it now; other than to mention these numbers are BIG."   


As I mentioned in this excerpt from 2013, I thought the market would move substantially higher and years down the road "irrational exhuberance" would take hold again.  Right now, I believe the markets are becoming over-taken by greed and this Reflexive Bull Market might be upon us.