atlantic city casino

Josh Brown at the Reformed Broker brings us this excerpt from Michael Santoli of Barrons.

It articulates the bull case for 2011, which is basically steady-as-she-goes:

The reasons the bulls are bullish are also pretty universally agreed upon. The industrial economy has gathered some momentum, the emerging markets are surging, companies are flush, profits look set to rise decently again, the Federal Reserve is seeking new ways to penalise risk aversion, taxes won’t go up and the market tends to do well in the year after a midterm election.

And we can add to the list the likelihood that another financial-engineering cycle is just getting into gear, so expect lots of equity-friendly refinancings by stretched companies, re-leveraging by cash-rich ones and buyouts hither and yon.

The thing is, it’s all pretty much true. And because of that, and given that stock valuations are not excessive, it’s tough to think a likely pullback or worse would signal some major top.

The major point we disagree with in this argument is valuations, which are, in fact, excessive. (Check out this chart of Shiller’s cyclically adjusted PE. Shiller thinks valuations are so high that the market will basically be flat for a decade). But valuation tells you nothing about what stocks will do in the short- and intermediate-term, and therefore nothing about what stocks will do this year.

Josh adds the following:

With so many Main Streeters still boycotting the stock market, even after a 21 month rally, I found the above to be a helpful guide to some of what they may be missing from the perspective of the bulls.


A Major Top is Unlikely Soon (Barron’s)

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