The Zigmont Report (Daily Market Recap for 1/12/18)

Mike Zigmont

Mike Zigmont, author of the Zigmont Report, is a partner at New York-based Harvest Volatility Management, a hedge fund with over $10B AUM, offering volatility management solutions to its investor base worldwide.  Mike has been publishing his daily newsletter (Monday-Friday) privately for the firm’s investors and his personal contacts in the investment business since 2008, sending it daily shortly after the market close.

The opinions expressed below are my own

There is no down.  Equities rallied strongly again today.  Capital flow was robust at 115%.  News was blah although earnings season did kick off.  JP Morgan announced this morning.  Results initially looked like misses but there were charges taken and accounting stuff and blah blah blah.  The effective tax rate is dropping and so the earnings outlook is rosy.  Investors rallied JPM 1.6% today.

On the macro front, growth is looking good.  Consumer spending appears strong and the Atlanta Fed just bumped their Q4 2017 GDP estimate (3.3% vs 2.8% prior).

Things look good generally.  Economic conditions are nice and companies are humming.  I’m glad about that too.

I’m still worried about valuations.  I started focusing on valuations more than a year ago and now I’m nervous.  It certainly looks and feels to me like price/valuation does not matter to investors at the moment.

Today’s values don’t matter because things are improving and so tomorrow stocks will be higher.

That is nonsense but that’s the logic.  Almost every talking head on CNBC today pointed to the improving economic conditions and the tax reduction and the easy central banking conditions…. To justify why they were buying this market and why the bull would continue.

That’s all well and good for sound bites and commercial breaks but prices matter.  Multiples matter.  The last time I heard valuations dismissed so universally, it was the late nineties.

At least back then, investors were struggling to value businesses in a whole new world.  You could forgive investors for making the valuation errors.

What’s the reason to ignore/stretch valuation now?

I don’t know.

See you Tuesday, have a great, long weekend,