Manhattan is crowded. In our judgment, sentiment is decidedly bullish. Decidedly – both on the earnings outlook and the equity market. We know everyone likes to romanticize that they are a contrarian bull on an island by themselves, but trust us, that island is not vacant. It’s crowded. Like Manhattan crowded. (Actually, we just looked it up, and Manhattan, by density, is only the 13th most dense city on earth. Chennai, India is #1. This worldwide web thing is cool.) We have received several emails in the last week from investors with messages of the ilk that “we all know this will end in tears”, but for now, people are not at the rehab center.
People can’t envision a catalyst to make fundamentals matter, they can’t envision a catalyst for earnings to come down, and they still think the “tradable rally” from positioning and policy will last. It well may last for a while more, but the disconnect from fundamentals can’t last forever. In the interim, we are going to try to focus, as usual, on what is mis-priced and what isn’t, under the same set of assumptions.
We've been hitting on this theme a lot lately.
An investor with whom we regularly talk described this as a 'Look Ma, No Hands' rally.
It's because of this that we're trying to figure out what "catalyst" people are most afraid of: Oil? China? Spain?