An Economic Glue Horse
Your Daily Reckoning editors spent most of their waking hours yesterday traveling from one place to another…and only a small amount of their time watching the stock market fall.
While Bill Bonner muddied his Gucci loafers in the Andes, Joel Bowman jetted from Taipei to Sydney and Eric Fry (that’s me) completed his reverse-commute from The Daily Reckoning’s headquarters in Baltimore, Maryland to its outpost in Laguna Beach, California.
Collectively, therefore, your editors spent very little time trying to determine the “whys” and “wherefores” of yesterday’s selloff. But don’t be dismayed; they spent lots of time examining the “whys” and “wherefores” of yesterday’s selloff…in advance of the fact. They’ve been wondering for weeks when the long-running rally on Wall Street might finally succumb to reality.
In other words, the unfolding correction is long overdue.
The economy has never been as robust as the resurgent stock market has been implying; and the resurgent stock market has never been as fundamentally valid as CNBC has been declaring. From all outward appearances – and most inward appearances – the economy still stinks, even though the stench may have dissipated somewhat. And yet, the S&P 500 Index has soared 60% off the March lows.
We aren’t complaining about this “gift horse,” but that doesn’t mean we would stake our retirement on the stud fees this horse would provide. In fact, we’d imagine that this ol’ codger wouldn’t survive more than one or two rolls in the hay. It is not a virile, young stallion. It is a glue horse. The S&P sells for about 140 times ACTUAL earnings. Sure, next year’s earnings will be better, but probably not good enough to justify current prices…at least that’s our guess.