I agree with a lot of what she said. The S&P’s current valuation is discounting well above-average GDP and profit growth – from normalized levels (and we’re not at normalized levels yet) – for the next 5 years. I think this is HIGHLY unlikely.
The big banks are on fire and while their stock prices don’t discount a lot of profit growth, they certainly don’t discount any future pain. Again, highly unlikely.
But two additional points:
(1) The banks have been raising capital like mad during this rally. This puts a floor under their stock prices, so it’s unlikely we’ll revisit the previous lows even if we have a pullback. Reflexivity is alive and well and it cuts both ways. Right now it’s bullish.
(2) A couple of years back, Meredith Whitney had both a variant view on things (and better information) and a variant analysis of the situation. Today, no one disputes her analysis or the information – that’s the consensus – just her view of what it means. And that’s a dangerous leg to stand on in the capital markets.
Again, I think we’re set up for a pretty major pullback at some point before the middle of next year, but… hell… it could be longer.
