The stock market has its head in the clouds again. Not only are we at all-time highs, but basically, everything is fantastic.
Profitless companies are skyrocketing in value, school kids with really cool mobile apps are becoming overnight billionaires, and the investing public’s fear of missing out has returned with a vengeance.
The only bubbles Wall Street sees right now are the bubbles in its champagne glasses.
Describing the utter lunacy of today’s market climate, Josh Brown of Ritholtz Wealth Management, author of Backstage Wall Street, wrote recently, “I told Mark Zuckerberg that my daughter’s lemonade stand was “the next Facebook” and he bought her out for $24 billion. So I’m basically retired now.”
It seems the more things change, the more they stay the same.
One of the behavioral disorders repeating itself is the “this-time-is-different syndrome.”
Explaining the genesis of this particular sickness, economists Carmen Reinhart and Kenneth Rogoff explained, “It is rooted in the firmly held belief that financial crises are things that happen to other people in other countries at other times; crises do not happen to us, here and now. We are doing things better, we are smarter, we have learned from past mistakes. The old rules of valuation no longer apply.”
What about political instability and other troublesome developments in emerging markets? (See Argentina, Brazil, China, Russia, Thailand, Turkey, Ukraine and Venezuela.) Apparently, the U.S. stock market isn’t bothered by the blood in other people’s streets.
What about stock valuations?
Five models for valuing stocks, including the Shiller PE and Tobin’s Q, project a blended return of zero percent over the next seven years. The least optimistic and perhaps most realistic? The Shiller full mean revision model suggests a 3.2% loss.