Nobody likes to feel stupid, right?
That’s where humanity’s natural tendency to rationalize comes in. See, we can rationalize anything. Against all evidence we strive – and in many cases succeed – in convincing not only ourselves, but even others that what we’ve done isn’t as ridiculous as it seems on the surface.
The frustrating thing about being in the evidence providing business (as we are) is that when you push people too far in terms of providing cold, hard proof that what they’ve done is idiotic, they will eventually just stop responding. That’s the point everyone is at with equity valuations. There’s no way to rationalize it anymore. So bulls won’t argue with you. They’ll either tune you out or they’ll tell you valuations don’t matter – that we’ve entered some kind of post-fundamentals Twilight Zone where traditional metrics have ceased to function as barometers of sanity.
Well, we’re not buying that. And indeed, even if we were, that post-fundamentals Twilight Zone is nothing if not a creation of central bank largesse and as we noted on Friday evening, the unwind of accommodative policy is “underway.”
So it’s time for a Saturday reality check. If you’re long risk, feel free to change the channel and/or return to your regularly scheduled Saturday programming which we can only assume is some infomercial for whatever the April 2017 version of a Thigh Master is.
Charts via Goldman (click to enlarge individual images)
And Goldman’s simple conclusion:
Hope led market to 2400 in 1Q; reality supports 2300 year-end target