When I heard that White House economic advisor and former Goldman Sachs (GS) CEO Gary Cohen resigned, I thought the Dow Average would crash 1,000 points.
Sure enough, the overnight futures markets was already reflecting down 450.
So, I spent last night writing up Trade Alerts to execute at the market opening. Laid out neatly on my desk in the proper order were alerts to BUY Intel (INTC), sell short US Treasury bonds (TLT), Buy Cisco Systems (CSCO), and sell short the IPath S&P 500 VIX Short-Term Futures ETN (VXX).
When the bell rang, the Dow instantly cratered 350 points and I got the (INTC) Alert off to the Mad Hedge Technology Letter subscribers. And that was it. The market turned around so fast that it was impossible to get anything else off.
So where's the crash?
Surely Gary Cohen has to be disappointed, who almost certainly believed the end of his government employment was worth 1,000 Dow points, instead of the paltry 350 points we saw.
What a come down.
The hard truth is that investors have been instilled with a Pavlovian reaction to buy stocks on any Washington inspired sell off because at the end of the day, they all amount to precisely nothing.
This has worked like a finely tuned Swiss watch, and will continue working, until it doesn't.
Here is the harsh reality.
At a 16X price earnings multiple at a Dow OF 23,800, and overnight rates at 1.50%, US stocks are still A SCREAMING BUY!
It doesn't get any easier than that. And here is another harsh reality. With earnings growing at a 15% annual rate, thanks to the tax cuts, the 23,800 PE multiple floor at 23,800 is rising by 3,570 points a year.
So this year's 23,800 16X multiple bottom becomes next year's 27,370 bottom. That means on any kind of pull back you buy with both hands. If it falls some more, you buy more. Period, end of story.
Normally, I dismiss purely academic valuation arguments out there. But the brutal fact is that there is still $50 trillion in cash sitting on the sidelines held by individuals, intuitions, mutual funds, hedge funds, and foreign investors trying to get into SOMETHING.
US technology stocks are their first choice by miles. That's why I started the new Mad Hedge Technology Letter five weeks ago, and it has been the smartest thing that I have done in a decade.
I expect this to remain the case until US interest rates rise too high, causing the yield curve to invert, eventually triggering a bear market and a recession. But I don't expect this scenario to unfold for another year.
Until then, make hay while the sun shines, and I'll try to get those Trade Alerts out a little faster. After all, I don't expect another major market meltdown until this afternoon, or tomorrow at the latest.
For new subscribers, and the old ones who have already forgotten, let me list below the ten reasons why there will be no stock market crash in 2018:
1) US stocks are still one of the highest yielding asset classes in the world
2) Oil prices are still less than half of where they were 5 years ago.
3) Stronger Japanese and European economies are enabling them to buy more of our exports.
4) While US interest rates are rising, they are doing so at a snail's pace.
5) Delayed US interest rate hikes will keep the US dollar cheaper for longer so more foreigners can buy our stuff.
6) Technology everywhere is hyper accelerating, sending profits through the roof.
7) Stock buy backs and M&A are shrinking the supply of equities.
8) Corporate earnings growth at the fastest in history, some 15% YOY.
9) The hurricanes created a big de facto infrastructure bill.
10) Trade war is more bark than bite.
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What, No Stock Market Crash?
