I heard it again this morning. Paying attention to valuation doesn't matter anymore. There is so much cash and so many new traders in the markets. The stock market is just going to keep going higher for the foreseeable future.
Nothing matters but price movement.
The pandemic is over, and it's time to party.
Even as prices are rising, traders buy into Jay Powell's idea that this is all temporary due to supply chain disruptions and other interim measures. The trillions of dollars that have been pumped into the economy by the Fed and Congress have nothing whatsoever to do with all this.
Even the bond markets are buying it right now. The 2- and the 10-year yield curve is retreating after a short-lived bounce. 10Year yield is up a bit today, but it is still just 1.53%.
The vaunted bond market vigilantes of my youth have rident off into the sunset, and either we are living in a brave new world, or the vigilantes will return to do their worst at some point.
The last time high yield credit spreads were this low was back in 2007. No one thought risk still existed back then either. The lowest spread of the previous decade before today was in December of 2019.
I am not saying that High yield spreads are predicting anything specific. All they did was tell us that things were too complacent for something not to go wrong.
Am I suggesting you should sell everything and hide in cash?
Throw it all into gold?
No. Although there is some evidence from Verdad Associates that using a 200-day MA-based trend following approach to gold when conditions resembling the current environment are in place has worked pretty well.
Gold is back below that level right now, so you would ...