Our great host Scott Wapner reported that a number of the big banks were issuing cautionary warnings on the stock market. Bank of America authored “Curb Your Enthusiasm.” Scott asked what these warnings meant and whether I was bullish or cautious. Smart aleck that I am, I answered “Yes.” Markets are making new highs, the Coronavirus pandemic is still with us, and conflicts between Republicans and Democrats continue apace. Add to US infighting concerns and conflicts with Russia, China, and Iran, and it feels foolish not to be a bit worried.
If you’re one of the pessimists who is perpetually wed to dark and stormy clouds, prepare to be insulted. The economy is cooking with gas. Vaccines are available; over 1 million people a day are back on airplanes; Americans have cash; S&P 500 earnings are increasing and are forecasted to continue increasing at about 17% for the next two years. Interest rates and tax rates are low, and the federal reserve is willing to allow the economy to run hot before feeling the need to take action. This is a dreamy scenario for investors. I never expect any market advance to escape the occasional pull-back, but this market has a LOT of fiscal gunpowder behind it.
Hearing the banks voice caution made me feel better. The time to worry is when the banks and brokerage houses proclaim a no-way-to-lose, orgiastic, unstoppable surge of share prices. Whenever you begin to think you can’t lose, you’re about to. The old Wall Street saw that markets climb walls of worry is generally true. As long as folks continue to worry, I continue to feel a bit safer. BofA is calling for lower prices by year-end. I think they’re more than a little misguided. I expect markets will be higher than today, and perhaps significantly. I’m not saying it’s right or wrong. It’s just what I see. As prices move higher, it’s critical that you own good companies with good balance sheets. Strong balance sheets and good operating companies endure and thrive and last through long periods of unpleasantness.
Before I paste the link to today’s discussion, I’d like to tell you about my fellow panelists. I’ve known Jon and Pete Najarian for at least 20 years. They are great, fun, nice, smart guys who have a completely different approach to markets. While they have longer term investments, they always discuss their option strategies. Their ideas are fascinating and sound brilliant. I confess that I don’t always understand them, but I have great fondness and respect for both of them and count them as friends. Joe Terranova and I have been doing CNBC for 10 years too. He is an investment professional who trades more frequently than I but is very thoughtful and disciplined. Joe couldn’t be a nicer guy. Jennie Harrington is one of Wall Street’s new bright lights. An absolutely brilliant, articulate wise and delightful person who invests for income and value. She has become a great buddy whom I really admire. The point in describing them is to show that many of our disagreements about stocks stem from our different investment disciplines. Jon can love a stock for a short-term options trade that I hate and would sell. Both of us may be correct given our time horizons and goals.