We were surprised to note yesterday that even some of the legendary market "bears" appear to be throwing the towel in light of the relentless Trumpflation rally which will not stop until 20K is in the rearview mirror, when we noted that even Bob Janjuah said that "the trends over H1 2017 should be higher (especially US) equities and yields, steeper curves, a stronger USD, and mixed performance in credit (especially in the IG sphere) and EM.... for me, most likely over the middle two quarters of 2017, I can see the S&P 500 cash index up at 2450 +/- 50 points, with the Nasdaq weakest and the Dow strongest of the big three US indices."
Yet one person refuses to jump over to the cheerful side.
Overnight none other than Dennis Gartman advised reader of his newsletter to stay on the sidelines, stating that "we shall once again suggest that new purchases of stocks at these levels shall prove to be ill-advised in the not too distant future." However, he notes, the "trend remains upward and fighting that trend…opposing that trend… or worse, being short into that trend is and has been debilitating. The proper course of action, obviously, is to be long of equities but fearful of the inevitable correction, which will be violent and sharp when it happens."
Gartman was also concerned about the overvaluation of the market "in momentum terms", saying that "given the extreme over-valuation of stock prices in momentum terms, or in terms of earnings/share in historical terms, or in terms of stock market strength in the face of bond market weakness, or in almost any terms one might wish to conjure up, stocks are egregiously over-extended, but then again as Lord Keynes said, “The market can remain illogical far longer than you or I can remain solvent.” We are too that point."
He also points out one of his favorite indicators, the CNN Fear and Greed Index, which "has fallen to 79 as of the close of trading on the NYSE yesterday, compared to 82 yesterday and compared to 88 one week ago. Historically, when this index has risen above 75 and then turned clearly downward stock prices have fallen rather markedly and are down sharply a week or two or three thereafter."
His parting words:
Finally, what does bother us is this: that the economy here in the US is strong and shall grow stronger in the New Year as the “animal spirits” of the populace generally are aroused after years of being caged. But… and this is the most difficult “but” of all… aren’t stronger economic circumstances good for equity values, one might reasonably ask? The answer is, “Not always” and the reason is that when the monetary authorities are erring toward tighter policies as evidenced currently by the sharp contraction in the adjusted monetary base AND as the economy strengthens capital moves from the capital markets… from equities… into new plant, equipment and labor.
It is quite common, historically, for economies to strengthen AND for equity values to fall during times such as that, just as it is quite common for equities to rise even as recessions deepen as the monetary authorities are then erring upon the side of monetary expansion while the demand for plant, equipment and labor is faltering. This is the “harsh” secret of economic expansions and economic contractions when compared to equity valuations that is all too often misunderstood and this is our great fear at the moment.
Nonetheless, for now, and until the current great good fun of this bull market has run its course, the trend is up; the music is playing; the women are beautiful; the men are well mannered and the punch bowl is still on the table."
Anyone considering shorting the juggernaut may be best advised to wait until Gartman, too, joins the stampede.