My post last night in which I dissect the new This is 1999 meme piece by piece has gone viral and the responses have ranged from vociferous agreement to hate-filled, bilious rants.
If you haven’t yet read it, it’s here:
Most of the negativity has clearly come from those who’ve gotten the market wrong for years now and they are misinterpreting my post as though it’s some kind of “buy” call. I understand the emotion, it’s got to be tough to have such a rigidly negative outlook and to watch stocks day after day invalidate your core beliefs. They can take it out on me if they need to but I am not predicting more pain for them or higher prices with this post, I’m merely pointing out the difference between today and the turn-of-the-millennium mania that this is nothing like.
I think the 1999 topic is important but I also find the way that the financial blogosphere goes to work on these types of market memes is fascinating. This medium – thanks to its collaborative nature and ability to be in-depth with its coverage – is truly superior for market discussions relative to print, TV, radio or anything else out there. I’m just really glad to be a part of it and to get to interact with you guys each day.
Anyway, some notable responses…
Joe Weisenthal liked the piece enough to pull in a summary, his post here at Business Insider.
Sam Ro riffed on it as well, check out this awesome chart he posted from Oppenheimer strategist John Stoltzfus with the PE overlay, also at Business Insider.
Dan Nathan, my castmate on Fast Money and the editor of the up-and-coming Risk Reversal blog, agrees that this is not anything like 1999, even though he believes caution is still very much warranted. His excellent response post here.
Also, one commenter on the post, who has now been blocked and blacklisted for life, made the suggestion that I was somehow talking down to my audience. Then he did the whole doomsday prediction thing and I got too bored to read the rest before deleting it.
But I would like to address his criticism of my writing style – I don’t have a big enough ego to make the assumption that I am in any position, based on intellect or experience, to be “talking down to my audience.”
This blog is read by business editors, reporters, producers and bloggers from every media firm in the United States. It is read by my fellow bloggers and pundits. It is read by my wealth management and investment professional colleagues. It is read by people at the Treasury Department, Goldman Sachs, various branches of the Federal Reserve, hedge funds across the country, trading desks in London and god knows where else. I get hits from congressional offices, major banks, brokerage firms, insurance companies and universities on three continents. And Art Cashin, a personal hero of mine, reads as well. I promise you, I don’t have the moxie to even pretend that I could condescend to my average reader. What I do here at this blog is examine the issues that we are all concerned about and try my best to sort out the good information from the nonsense. I do it in service to my own learning and thinking process.
It helps me and if it helps others, I am thrilled.
Finally, and most importantly, a quick word on my Shiller CAPE screed. It is not that I don’t believe the Shiller CAPE metric to be a worthwhile valuation measure, it’s that I don’t think people ought to live and die based on it. David Horn of Kiron Advisors sent me an excellent paper defending the validity of the Shiller CAPE by uber-quant Cliff Asness (AQR). It’s a great read and I learned a lot from it.
The bottom line is that Cliff and I disagree on one thing (the data’s validity) but agree on the bigger thing (how to use it).
Cliff says the CAPE 10 is still valid despite the massive economic event that crushed earnings in 2008-2009 simply because profits beforehand had been artificially high in the years before – thus validating the smoothing approach. I get it, but I disagree – who is to say what an artifically high profit is? And then can’t we always nitpick about the sources of profits from all other years and eras? Also, as Cliff addresses, the timeframe of ten years is certainly arbitrary, why not seven years or twelve or four? Finally, with 115 years of data, how many occurrences do we have to show the forward returns of a market sitting at a Shiller CAPE of over 24? One? Five? Not many. 115 years of the performance in a complex adaptive system is the only sample size we have, but that doesn’t make it a good one.
Doesn’t matter, because even as Mr. Asness disputes the criticism of using CAPE in the aftermath of the Credit Crisis, he does agree with me that it should be used as a planning tool to asses the probabilities of future returns, NOT as a market-timing tool as it’s been misused by many. His view of making tactical decisions based on this measure is that it should merely be a small factor in your calculations of expectations, not the whole enchilada.
I’m embedding the whole paper below because it’s important: