Investors Must Read This

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Are stocks presently:

A) Severely undervalued…

B) Somewhat undervalued…

C) Fairly valued…

D) Somewhat overvalued… or…

E) Severely overvalued?

Please select your answer.

Yet the devil is in us today. Let us then befuddle, confound and dizzy you with another selection:

F) Stocks are obscenely overvalued.

What is the answer? You will have it shortly.

Let us first look in on the center of our mystery — Wall Street itself.

Nvidia Lifts Market to Record Heights

Stocks were up and away today… high aloft on Nvidia’s mighty wings. CNBC:

Stocks surged to new highs on Thursday after chip giant Nvidia reported much stronger-than-expected quarterly results, lifting the broader market and tech sector…

Shares of Nvidia popped more than 15% to an all-time high after the chip company said total revenue rose a whopping 265% from a year ago — driven by its booming artificial intelligence business.

The Dow Jones Industrial Average vaulted 456 points today. The S&P 500 leapt 105 points while the Nasdaq Composite skyshot 450 points of its own.

Meantime, oil, gold and the 10-year Treasury scarcely budged a jot.

All is peace.

Drumroll, Please

What then is the answer to today’s question?

Are stocks presently:

A) Severely undervalued…

B) Somewhat undervalued…

C) Fairly valued…

D) Somewhat overvalued

E) Severely overvalued… or…

F) Obscenely overvalued?

We have dangled you upon our sharpened hook long enough.

Here — then — is your answer:

F. The answer is F. Stocks are obscenely overvalued.

Financial crackerjack John Hussman:

Based on dozens of measures… we estimate that current market conditions now ‘cluster’ among the worst 0.1% instances in history — more similar to major market peaks and dissimilar to major market lows than 99.9% of all post-war periods… Our most reliable valuation measures are… beyond every extreme in U.S. history prior to March 2021, apart from five weeks surrounding the 1929 market peak.

The worst 0.1% instances in history — beyond nearly every prior extreme?

Kind heaven, no! Can it be?

The Bright Side

Colleague Greg “Gunner” Guenthner of our sister publication The Rude Awakening is a wizard trader. And he counsels us against taking this Hussman too heavily.

That is because Mr. Hussman is an excessively negative and bearish fellow.

This Cassandra observes Jesus walking upon the water. “See?” says Mr. Hussman — “he can’t swim!”

In his telling the market cannot swim. Yet his figures leave a fantastic and gobsmacking impression upon us.

0.1% and 99.9% are highly handsome percentages. They are not — for example — 42.7% and 57.3%.

They are not 27.8% and 72.2%.

They are 0.1% and 99.9%. That is, very nearly 100%.

We must conclude stocks are far nearer their summit peak than their valley bottom.

Nosebleeds

The Federal Reserve itself begins to observe nosebleeds. From the minutes of its January confabulation, issued Tuesday:

The staff provided an update on its assessment of the stability of the U.S. financial system and, on balance, characterized the system’s financial vulnerabilities as notable. The staff judged that asset valuation pressures remained notable, as valuations across a range of markets appeared high relative to fundamentals.

“The staff” polices its language to extravagant degrees. It does not wish to frighten the horses and fluster the fish… after all.

Now switch in “frightful” where it reads “notable.” Now you have arrived upon a genuine comprehension.

Yet a question hovers in the air: Why are investors piling into stocks?

It is because they are under exquisite torture — internal torture. The abovesaid Mr. Hussman:

Investors feel an almost excruciating “fear of missing out” amid nominal record highs in the S&P 500 and Nasdaq-100, enthusiasm about an economic “soft landing” and an expected “pivot” to lowering interest rates.

Thus CNN’s famous Fear and Greed Index ranges presently into “extreme greed.”

Not greed, that is — extreme greed.

Thus we are with Omaha’s sage, Mr. Warren Buffett… and his sage counsel to be fearful when others are greedy… and greedy when others are fearful.

When others are extremely greedy we are extremely fearful.

Today we are extremely fearful.

“This Time Is Different!”

“This time is different,” runs the eternal refrain. And it always is different — in the particulars.

A dot-com boom is not a housing boom is not an artificial intelligence boom.

It is these particulars that fox and deceive investors. It is why they believe this time is different.

That is precisely why it is always the same.

It is precisely why investors perpetually stumble into the snare.

It is precisely why we believe they will come to grief.

Yet perhaps this time is well and truly different. We concede the possibility.

And in fairness — in fairness — many market indicators suggest that stocks are merely overvalued or substantially overvalued.

They are not, as we claim today, obscenely overvalued.

And we admit it at once: Manias can defy all logic, all sense. Market manias are often the most maniac of all manias.

Perhaps Mr. Powell and mates can maintain the psychiatric condition.

Yet their most recent mumblings indicate they do not wish to.

The Individual vs. the Crowd

This publication grazes against the grain. And we avoid locations where the crowd is thick.

As we have argued before: A man in a crowd ceases to be a man. He is instead a face. He is but one cog in a machine very often lunatic.

A man in a crowd does not think for himself. The crowd thinks for him. That is, the man ceases to think.

The crowd’s lusts become the man’s lusts. The crowd’s will becomes the man’s will.

A market too is a crowd. And it is equally susceptible to lunacy.

The stock market bubble of 1929, the technology bubble of 2000 and the housing bubble of 2008 added entire chapters to the literature of market lunacy.

Additional chapters — no doubt — await writing. Perhaps the next chapter is presently being authored.

Its title may read “Duped Again: Artificial Intelligence.”

Are You Really a Contrarian?

Many investors believe themselves “contrarian.”

They bellow contrarian gloats and gurgles — “I never follow the crowd. I always do the opposite. I’m my own man.”

Yet in reality… few pluck up the courage to abandon the herd’s comforting embrace.

The pull proves irresistible for most.

Here we do not judge. Nor do we condemn. We merely describe.

The crowd offers safety. Strength. Solidarity. Companionship. Reassurance.

We therefore have no heat against the man who chooses its enticements.

Yet as we have also argued before: We confess a vast respect for the man who never wanders into a crowd — for the man who does not flock.

For we prefer humanity in batches of one. The individual’s example — the contrarian’s example — is the eagle… the free and noble eagle.

For the eagle does not flock. You find it one by one.

That is, the eagle takes the contrarian view. In our experience, that view is often the superior view.

There you have the eagle high aloft, wheeling and wheeling on motionless wings, on steady wings, on confident wings…

There you will find the true contrarian.

Like the eagle, he is free to starve.. Yet like the eagle, he is free to soar. And the man in a crowd?

He is free only to follow.

And he is presently following his way — we hazard — into a mighty fine scalping…

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