Courtesy of Mish.
Looking for extreme sentiment?
Look no further than the cover of Barron’s magazine.
The cover speaks for itself, but check out some of the commentary in New Highs in Sight
The party is far from over. The early-year rally that on Friday took the Dow Jones Industrial Average to within 1% of its record high, set in 2007, could have a lot further to run. For starters, stocks aren’t expensive. The Standard & Poor’s 500 index is valued at about 14 times estimated 2013 profits and the Dow fetches less than 13 times projected 2013 earnings. At the market peak in 2007, the Dow traded for 16 times forward earnings. Given ultralow interest rates, the market multiple has room to expand even if earnings growth remains modest.
There’s a huge amount of money that could shift into stocks because individuals until recently have favored bonds over equities, based on mutual-fund flow data. “If there is a great rotation going on from bonds to stocks, we may be only in the top of the first inning,” says Jason Trennert, chief investment strategist at Strategas Research Partners in New York. Trennert cites the TINA — or “there is no alternative” — factor, as yield-starved investors move into stocks.
First Inning?
For starters, are the forward earnings estimates any better now than they were in 2007?
Second, let me point out that money does not flow from stock to bonds or vice versa. For every buyer of stocks there is a seller, so the statement on rotation from bonds to stocks is point blank absurd. There can be a repricing of bonds, a repricing of stocks, a repricing of both, or a repricing of neither, but there is no flow.
Third let me ask “Does it get any more extreme than someone calling this the first inning after stocks have had more than a 100% rally in a few years?
Nonetheless, sentiment alone cannot time a top. Perhaps the DOW or the S&P do make record new record highs. Regardless, this Barron’s cover reminds me of a post I did back in 2005.
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Back on June 7th, 2005 I put in a top call with help from Time Magazine. That top call was based on this cover.
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