Here’s an interesting observation from Mike O’Rourke of JonesTrading.
In unusual timing, we’ve recently heard from three investing billionaires (Warren Buffett, Carl Icahn, and Stanley Druckenmiller) suggesting that the stock market is getting rich and fully valued.
[Buffett] noted that the equity market was fairly valued and stocks were not overvalued. Specifically, Buffett said “They were very cheap five years ago, ridiculously cheap,” and “That’s been corrected.” He also noted, “We’re having a hard time finding things to buy.” One has to take note when the world’s most high profile investor (a long investor), cannot find stocks to buy although he reports his business is improving. Buffett was not the only Billionaire to weigh in last week. Carl Icahn responded candidly when asked his view on the market. “Right now, the market is giving you a false picture. The market tells you that you are doing well, but I don’t think a lot of companies are doing that well. They are taking advantage of very low interest rates. So, obviously, you don’t have to be a financial genius to understand if I can borrow at 3% or 4% and buy assets maybe my own stock that is yielding 9%, 10% or 11%, I am going to make a lot of money. In one sense or another that is what is going on….I do think at 17x that you have to be pretty well hedged.” These comments come a little more than a week after Stanley Druckenmiller opined that, “But if you tell me QE is going to be removed over nine or 12 months, that’s a big deal because when it’s my belief that QE has subsidized all asset prices. And you remove that subsidization, the market will go down. Druckemiller elaborated “My first mentor and boss, Dr. Ellis in Pittsburgh, used to tell me it takes hundreds of millions of dollars to manipulate a stock up, but the minute you have this phony buying stop, it can go down on no volume and it can just reprice immediately. I personally think as long as this game goes on, assets will stay elevated. But when you remove that prop – and let’s face it, the Fed has said they’re targeting those asset prices – those prices can adjust immediately.”
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