zerohedge.com / by Lance Roberts via RealInvestmentAdvice.com / by Tyler Durden / Mar 20, 2017 12:59 PM
One of the hallmarks of very late stage bull market cycles is the inevitable bashing of long-term valuation metrics. In the late 90’s if you were buying shares of Berkshire Hathaway stock it was mocked as “driving Dad’s old Pontiac.” In 2007, valuation metrics were being dismissed because the markets were flush with liquidity, interest rates were low and “Subprime was contained.”
Today, we once again see repeated arguments as to why “this time is different” because of the “Central Bank put.”
First, let me just say that I have tremendous respect for the guys at HedgEye. They are insightful and thoughtful in their analysis and well worth your time to read. However, a recent article by HedgEye made a very interesting point that bears discussion.
“Meanwhile, a number of stubborn bears out there continue to make the specious argument that the U.S. stock market is expensive. ‘At 22 times trailing twelve-month earnings,’ they ask, ‘how on earth could an investor possibly buy the S&P 500?’
The answer is simple, really. Valuation is not a catalyst.”
They are absolutely right.
Valuations are not a catalyst.
They are the fuel.