It’s a Buffett cliche, but in the short run the market’s a voting machine, in the long run it’s a weighing machine. Right now the market’s going up because it’s going up. I posted previously that we’d see bad news out of the following:
TXN
QCOM
INTC
AMD
RIMM
MOT
AMAT
All but QCOM reported disappointing earnings for Q1 and guided lower for the year. All of their stocks are up right now. Fortunately I’ve got no dog in the fight. Nevertheless, it just goes to show you how disconnected things can get from the mooring of value.
With the exception of late-1999/early-2000 this is as crazy as I’ve ever seen things in terms of valuations versus the fundamentals and sheer animal spirits. Something will give eventually.
Recall that the biggest, most violent move toward Nasdaq 5000 occurred in a very short period of time in early-2000. I feel like this is a similar blow-off.
An interesting observation: Between 1871 and 2003 the standard deviation of returns on the stock market was approximately 17.5% annually. The standard deviation of dividends – that is, the underlying cash paid to shareholders – was just 12.4% annually. So, the movements in the stock market have historically been over 40% more volatile than the underlying fundamentals. Eventually the prices mean revert but the process can take many years (think back to the late-90s).
Anyway, eventually this market’s going to tank, but whether it begins next month or next year is anybody’s guess. Right now, people just want to buy and that’s all that’s important.
