Wall Street Says It’s Different This Time

May 17, 2014

It’s a good thing it’s different this time! We know it is because Wall Street says so.

The high-valuation levels indicated by the Shiller CAPE 10 Price/Earnings Ratio mean nothing this time, because things are different than when that indicator’s similar readings in previous periods were accompanied by market tops.

The age of this bull market also means nothing because it’s different this time, since we have the Greenspan/Bernanke/Yellen Put in place, That promise is that the Fed is neither ahead of nor behind the curve, as it was so often in the past. This time the Fed is on top of what is going on, and knows what it must do to prevent economic slowdowns or market corrections from worsening into recessions and bear markets.

It sure worked in the summer slowdowns in 1998, 2011, and 2012. Well okay, not so much in the summer of 2010 when the S&P500 plunged 19%. And not so much in preventing the 2000-2002 and 2007-2009 meltdowns. But 2010, 2008? That’s ancient history.

We also know the stock market cannot be timed. We know that also because Wall Street says so. We know that it cannot even warn when risk is high with enough accuracy to require cutting back exposure. Just buy any time and all the time, and let time take care of it.

Therefore, we need not be concerned about those high valuation levels, nor that we are in the second year of the Four-Year Presidential Cycle, and since 1934 the average decline in the 2nd year was 21%.

How about that silly stuff about Sell in May and Go Away outperforming the market over the long-term?  It supposedly does so by avoiding the large losses often associated with the summer months? You only have to look back and see it didn’t work last year, or in 2012. It hasn’t worked since 2011. Besides, don’t look back. Look at what’s going on now. The Dow and S&P500 just made new record highs a few days ago.

They pulled back some over the last few days, but not even enough to retest the potential support at their 50-day moving averages.

Sure, the NASDAQ and Russell 2000 are already in correction territory (down 10%)? So what? That’s meaningless, just a reflection of how speculative stocks got ahead of themselves and needed to cool off a bit before getting back in harness to the upside.

Corporate insiders are selling at a near record pace? Corporations themselves are dumping IPO’s on the market, selling stock to enthusiastic investors at a frenzied pace? So-called ‘smart money’ big-names are issuing warnings of a serious correction, even a bear market?

Okay, so they were right with their selling and warnings in 1999, and in 2006 when the housing bubble was building, and in 2007. And investors who didn’t pay attention to the warnings were smashed down when those bubbles burst. And the wealth inequality between the top 5% and the rest of the country kept getting worse.

Well listen to this. Corporate insiders were selling heavily last spring, and those top 5% ‘smart money’ guys, hedge funds and the like, warned early last year that a big correction was coming last summer. And it didn’t.

So why be concerned. Wall Street says it’s different this time, and the stock market can’t be timed anyway.

Okay, I get all that. See and hear it every day.

So I must be a dinosaur in my thinking that conditions at previous tops, valuation levels, warnings from ‘smart money’, seasonality, etc., going back at least 100 years, have always had relevance when similar conditions appeared in later periods. Not with enough accuracy to provide buy or sell signals, but certainly with enough to warn of unusual risk.

And they are doing so now.

My advice is that investors pay attention.


Sy is president of StreetSmartReport.com and editor of the free market blog Street Smart Post. Follow him on twitter @streetsmartpost. He was the Timer Digest #1 Gold Timer for 2012 (Gold Timer of the Year), as well as the #2 Long-Term Stock Market Timer.

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