With the Dow and Nasdaq hitting a series of new all-time highs recently, what is happening right now is madness.

KWN Templeton 3-20-2014Templeton’s Warning About The “Euphoria” Stage
Here is what Peter Boockvar wrote today as the world awaits the next round of monetary madness:  “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” You likely have heard that quote before from John Templeton, an investing hero of mine. My prior boss, another great investor, often cited it and I felt that it was an important guide in gauging what stage of a bull market we are in. Sentiment is an unusual thing as its driven by emotion that separates itself many times from underlying reality both up and down. Considering the relentless, almost parabolic rally since the election as we approach the 8th year of this bull market that is nearing the longest ever, how can we not ask ourselves whether we are in the “euphoria” stage of this bull run…

Some say we need the participation of the retail investor in order to reach that level. I disagree as after two 50%+ bear markets in 15 years, that is not going to happen. Many have not and will not come back. Thus, we have only other ‘emotion’ indicators to rely on and even those are really only helpful in retrospect.

“Best Move: Just Buy Everything”
It was on January 12th, 2016 when an analyst at RBS said “Sell everything except high quality bonds…We think investors should be afraid.” He expected a “fairly cataclysmic year ahead.” The market bottomed a month later and the S&P 500 is up 30% since. I saw on TV last night with a headline titled “Best Move: Just Buy Everything?” Last week a writer at Marketwatch wrote “Here’s why you shouldn’t buy a stock ever again” in a fawn over passive, index investing.

We know that the amount of Bulls in the weekly Investors Intelligence survey have only been seen a few times over the past few decades. They currently total 61.2 vs 61.8 last week. Bears are a microscopic 17.5. I’m no technician and only use overbought/oversold metrics as a background message fully understanding that when extreme in one direction, it can get more so but we are really, really stretched. The 14 day RSI in the NDX yesterday closed at 84.7, the highest since January 1992. It was 84.2 in January 2000. The index is up 11 out of 12 days and that down day totaled 1.7 pts. The technology sector within the S&P 500 is up 14 days in a row.

Valuations don’t matter until they do and certainly haven’t mattered for a while but we can’t deny the fact of where stocks are trading relative to other historical peaks.

Much of the ebullience is being driven by hopes over a large cut in the corporate tax rate. To put numbers to this, the Bloomberg US exchange market capitalization has increased by $2.5 Trillion since the day of the election. According to the CBO estimate, the US will take in $320 Billion in fiscal year 2017 in TOTAL corporate income taxes. Thus, if the entire corporate tax was eliminated, we’ve priced that in by 8 times and some of those corporations are privately held. I know that we’ll get regulatory relief and capital spending tax incentives that the market is celebrating but you get my point.….more here