Take a moment, and note the date.
When I chose the order of addressing these assumptions, I did so in no particular order; and toppy action lately had me concerned that this installment would be obsolete before I could get around to writing it. But no, the pollyanna advisors are still about, hawking their startlingly bad advice.
Any way you look at it, stock prices are unsustainable.
On the technical side, sentiment readings are at ominous extremes, and the Elliott Wave counts are downright grim. There are plenty better sources for details on these than me, so I will proceed to fundamentals.
On the fundamentals side:
1) We have a credit supply (and therefor money supply) on the verge of collapse (see any of my previous posts re deflation and the dollar). And, all things being the same, you cannot maintain a $100 stock price in the face of a significant decrease in the dollar supply of potential purchasers.
2) Current aggregate dividend payouts are not remotely sustainable, especially in the face of lowered forward earnings.
3) Political realities for the near term mean American industry is looking at unprecedented increase in government meddling, which has a solid track record of negative impact on productivity.
Numerous counter-arguments are available. I will address only one; my 'favorite' - the notion that "financials will lift the market higher". In the words of Seth Myers, "Really? REALLY?"
Bear in mind that this is an industry that is still stuffed to the gills with bad debt, the value of which is still being artificially inflated by what amounts to fraudulent accounting practices, adoption of which was strong-armed in the desperate hope that current conditions were something that could just be waited out. If all these firms were required to report these 'assets' at fair market value, all that capital would disappear. And here's the important part: This WILL happen eventually. The saturation and reversal of the preceding credit inflation means that prices must drop, especially large items like real estate, and it is real estate that underlies the bulk of these bad assets, so the value of most of these assets will Never come back.
Much is also made of the effect of the current yield curve on profitability. "Big Ben Bernanke isn't going to raise rates anytime soon", is a quote that sticks in my mind. As if "Big Ben", or anyone else at the Fed, had any such control! If you plot history of 3-month T-bill yields, vs. Fed actions, going back a far as you care to, you will see that the Fed does Not lead - it follows! When it come to interest rates, the fed does exactly what the market tells it to do.
The world's banking industry has (at least twice in my lifetime) gotten itself into terrible trouble before, by assuming a profitable status quo would be maintained indefinitely. But change is constant. Rates Will go up, at some point, whatever the Fed's wishes, and the financial firms that have become dependent on this situation as a 'lifeboat' strategy will find it will become an lead weight, as scale efficiencies become scale inefficiencies.
The rally is close enough to over, and the downside risk so extreme, that no one should be long this market. Remember that, historically, cash always appears worthless right at the time wich, in retrospect, it rurns out it was the very best option.
(disclosure: short, or holding puts, on things that move)
Take a moment, and note the date.