Rational Exuberance

Daily ReckoningDaily ReckoningAugust 18, 2020

This post Rational Exuberance appeared first on Daily Reckoning.

WE doff our cap — grudgingly yet courteously — to Jerome H. Powell and his mates.

For they have facilitated the S&P’s greatest 100-day spree in history…

The index trampolined 50.8% in the 100 trading sessions since its March 23 bottom.

LPL Financial Chief Market Strategist Ryan Detrick, hoisting a flute of champagne:

2020 is a year that is setting many records, some good and some bad, and now we have the best 100 day rally ever.

Only the S&P’s 45.9% 100-day surge ending in July 2009 approaches it. The vast majority of previous rallies failed to breach 30%.

But what next? Where does history indicate the S&P might trade 12 months from today?

We dangle before you the following choices:

A): -11.6%

B): -3.9%

C): +4.7%

D): +9.4%

But the devil is in us today. Since we are in such impish spirits, let us add a fifth option:

E): 0%

That is, the S&P will end the 12 months precisely where it began the 12 months.

The answer you will have shortly. We first focus on where the S&P ended today.

That answer is + 0.27% — a 9-point gain.

The Dow Jones actually shed 86 points today. But the Nasdaq took up the slack with a 110-point advance.

Gold, meantime, made good a healthful portion of last week’s routs… racing $44.20 ahead today.

Barrick Gold in particular surged 11.70%. Barrick has received a very fair wind, a wind blowing in from Omaha, Nebraska…

Mr. Warren Buffett’s Berkshire Hathaway has purchased nearly 21 million shares of Barrick stock.

Yet Mr. Buffett has repeatedly mocked, ridiculed and slandered gold.

It has no utility, he has claimed. Men dig it from the earth only to rebury it in vaults.

It is far more profitable to wager on America than to wager on gold, argued Omaha’s sage:

“The magical metal was no match for the American mettle.”

But Mr. Buffett has purchased 21 million shares of a gold stock.

Does he now believe the magical metal overmatches America’s mettle?

We do not know of course. Yet his gold investment sure has fluttered the dovecotes… and raised eyebrows. Ours are among them.

But to return to today’s central question…

Where does history indicate the S&P might trade 12 months from today?

Once again your choices are:

A): -11.6%

B): -3.9%

C): +4.7%

D): +9.4%

E): 0%

We have held you suspended long enough…

The answer is D — +9.4%.

On average — the phrase is necessary — the S&P gains 9.4% in the year following a 100-day rally of 22% or more.

Its latest 100-day ballooning, recall, is 50.8%.

Can you therefore expect the S&P to trade 9.4% higher one year from today?

A leading question, to be certain. Have crystal balls ever been murkier?

Here are some of the questions, the unanswerable questions, which enshroud the future in fog…

When will authorities release the United States economy from prison?

How many liberated businesses will actually reopen their doors?

Will a second wave of the virus wash ashore? Would it prove more lethal than the first — as the second wave of the 1918 Spanish influenza proved more lethal than the first?

Will researchers brew a working vaccine?

Who wins the election? If not the incumbent, what market-taming regulations might await?

Will the donkey party also seize the House and Senate?  What additional market-taming regulations might await if it does?

The stock market — being presently “priced for perfection” — appears to have resoundingly positive answers to these questions.

How it has acquired this knowledge remains rather dim to us. For our agents wire us a delirium of worrying speculation.

What the stock market rather projects — we hazard — is trillions in future central bank liquidity. And for excellent reason.

It will likely receive it.

Irrational exuberance?

To the contrary  — it is rational exuberance…

Below, Jim Rickards shows you why the economic outlook does not support the stock market’s apparent faith in the future. Should you expect a second wave of the virus Read on.

Regards,

Brian Maher

Brian Maher
Managing Editor, The Daily Reckoning

The post Rational Exuberance appeared first on Daily Reckoning.

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