With the Dow at a high, the bears are soooo boringMarch 6, 2013: 11:44 AM ET
By Lee Munson
In the past when stocks hit records, investors would start rushing in to buy. This time around, it's the opposite: They've been sitting in cash, have missed the rally, and are beyond depressed.
"Now we'll never get in," they say.
I feel for them. They're in a pickle. I get why it doesn't feel good to buy stocks after a big run.
But comparing price levels today to some arbitrary date in the past isn't what investing is all about.
Here's what I'm looking at:
Corporate profits are strong: Corporate profits are about 35% higher now than during the peak of the last business cycle. Period. The market is about where it was back in 2007, but makes a whole lot more.
Valuations aren't bad: Right now the P/E on the S&P500 is just under its historic valuation of 13.7. Not only are valuations average, after adjusting for inflation the Dow is still 11% below its all-time high.
The Fed isn't changing course anytime soon: It takes time to unravel years of QE. And Ben Bernanke has made clear there would be no rate hikes until unemployment gets closer to 6.5%. That is your countdown clock, CNN.
The yield curve is not inverted: What does that mean in English? It means bond investors don't think the world is going to end. If they thought it was, they would buy a lot of 30-year Treasury bonds even if they were yielding less than 5-year Treasuries. That ain't happening right now. The curve can invert even with low rates if the Fed starts to hike and the market thinks the move is too early and growth will be killed.
Meanwhile, over the past few months, the bear case has gone from bad to worse.
During a recent industry conference, I hung out with a few top bears to understand their point of view. Shockingly, the only reasonable response was 'the U.S. could do better'. Better? Yeah, I am aware, but that hardly constitutes selling short and hording gold and Glocks.
I think they need a more reasonable thesis that doesn't include predictions of a 90% drop in the stock market included with a free trial subscription to a newsletter.
Tell me Germany will take another 2 years to get out of a recession. Tell me Japan is full of crap and will never beat deflation. Tell me China is understating half of their GDP or more. You show me consumer spending didn't just hiccup last month, but is trending down month after month and you can have my ear.
There are still plenty of things to go wrong, but perhaps too many things going right for the end to be really near.
Lee Munson is the founder and CIO of Portfolio, LLC. The opinions expressed in this commentary are solely his.