Investment Manager’s Report:
“There are a number of warning signs in today’s market…price earnings ratios are extended and dividend yields are low…it is hard to imagine a continuation of growth, low inflation, low interest rate environment. In sum, our cautious attitude will result in less exposure…”
Michael Steinhardt, April 1987.
The word “mesmerize” seems appropriate. It comes from the 18th century doctor, Franz Anton Mesmer, whose experiments on animal magnetism produced a trance like state in his subjects. Could Chairman Greenspan’s experiments with credit excess be capable of enthralling an entirely modern audience of speculators? As Doug Noland points out, the bullish consensus argue that with a weaker dollar buttressing US competitiveness and the global economy booming, stock markets can really breakout to the upside. The charts concur. For my part, I don’t disagree; I just fear an unstable surge ending in dislocation. Why? Remember Steinhardt, one of the world’s greatest investors? His cautious commentary from 1987 seems eerily appropriate today.
