Dancing While It Lasts ...

Let' s start with some excerpts from the highly recommended weekly missive by Jeff Saut, the strategist at Raymond James:

According to Jeremy Grantham, “In markets, where investors hand over their money to professionals, the major inefficiency becomes career risk. Everyone’s ultimate job description becomes – keep your job. . . . Refusing, on value principal, to buy into a bubble will, in contrast, look dangerously eccentric. And when your timing is wrong, which is inevitable sooner or later, you will, in Keynes’ words – not receive much mercy.” Indeed, performance risk, bonus risk, and ultimately job risk.

And zoom in to the call for this week:

In last week’s “Call for this week” we wrote, “With the Pros’ return we should get a better idea of the stock market’s near-term directionality. Our sense is they will show up in ‘buy ‘em’ mode since stocks just won’t go down and the Pros are staring at their October fiscal year.” And, they did just that as, “each competitor has (been forced) to pick not those faces which he himself finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view.” The important point is that although this runaway rally is extended, the supply/demand, and sentiment situation, is still favorable. So while the “music” may pause this week on worries the U.S. tire tariff being imposed against China using the “safeguard mechanism” agreed to under China’s WTO entry conditions, the “music” is likely not going to stop.

Just to spice up the brew... I have been mentioning the income inequality couple of times, and will come back to this soon again, but this time - a quote from Marc Faber:

Now, given that wealth, incomes, and savings are so concentrated, it easy to see that the top 1% or 5% of the income earners and wealth owners will speculate in the one or the other asset class with gusto. With average savings of more than $300,000 annually, the top 1% of income earners can afford to take a punt here and there. These 1% top income earners also talk to each other and have the same investment advisors and, therefore, the money will tend to flow into whatever asset class that shows the most upside momentum - irrespective of whether the price increases seem to make much economic sense or not.

So, do you sense now?

Well, Doug Kass lost (so far, and was quick to admit it) the gamble for the top in S&P500 this year, but he has the capacity to sum up on its own:

In summary, the market has discounted favorable expectations (certainly against forecasts four months ago!) and seems more "certain" of a self-sustaining recovery cycle outcome. Reflecting the gravity and weight of so many inhibiting factors, I see a much broader range of possible outcomes and less certainty than some of the newly printed bullish market participants.
The credit expansion of the last several decades has reversed, it will take time to reverse the damage to net worth and confidence, the consumer remains in a fragile state, corporations will make do with more productive but fewer personnel (job growth could continue to disappoint), there are no apparent drivers to replace the role of housing (2002-06) and numerous nontraditional headwinds (most importantly higher marginal tax rates) will have an uncertain impact on aggregate growth.

Who knows?