Right on schedule!  Two weeks ago I wrote that Goldman Sachs will soon march their prized analyst out to pump up the troops. They did today.

Before I get into the update, here’s the point: if you’re going to be permanently bullish on the stock market (it’s always going higher) then one can understand when you are praised for being right when the stock market goes up. But you should rightly also be criticized for being wrong when the stock market tanks while you call for it to rise.

Abby’s point of view:

  • ” Let’s be very clear, there are some fundamental worries.”
  • ” But our feeling is the valuation of the U.S. stock market is already pricing in a rather ugly scenario.”
  • ” There are many different ways to look at the mathematics of valuation, but one of them is to say at these levels (on the S&P500) what’s priced in is many years of no earnings growth. That does not seem to us to be the most likely scenario.”

Are you kidding me?  The S&P500 was at 1122 when she was on CNBC today. If the next year of as-reported earnings on the S&P500 are around $75 (and they will be), then a plain vanilla average 15X multiple gets you to (drum roll please) 1125!!!  The current quarter plus the previous 3 quarters delivered $84 in as-reported earnings. That took staggering amounts of life support from the US Congress and Fed that are going to be pulled back over the next 12 months. $75 is a darn good estimate on where the real earnings are going to be from the S&P500 next year provided nothing goes badly wrong with the European or US economy (or Japan or China or …)    You want to take that bet?   If you take out any bad stuff from earnings, and assume earnings only get better and never mean revert, then yes, I agree 1122 is a deal. Buy!  Buy! Buy!   But that is sheer fantasy.

If the S&P500 were truly pricing-in several years of negative earnings growth (what is actually about to happen, by the way), the index would be cut in half to the 600s or 500s.  So please give me a break with the line that somehow 1120 on the S&P500 represents a good deal.

I agree with Abby that investors need to take a longer term view on investing. But here’s the thing: if you are going to ignore what’s directly in front of you and instead focus on the horizon, you better make sure you’re not standing on the edge of the Grand Canyon.