Several years ago, Rolling Stone ranked the 10 best movies by former cast members of Saturday Night Live. Bill Murray barely made the list with Rushmore – an offbeat comedy from the late 90s. I remember thinking that Murray had been cheated in the editorial; he should have received additional nods for Caddyshack, Stripes, Lost In Translation as well as What About Bob.
In that vein, how on earth did they miss the quintessential camper experience from my youth, Meatballs? Granted, Meatballs did not have the critical acclaim of Lost in Translation or the monumental influence of Caddyshack; the writer may not have been alive in the 70s. Nevertheless, Meatballs had one of the most iconic quasi-motivational speeches ever.
Murray’s character, head counselor Tripper Harrison, persuades a band of misfit teens to take on the elite athletes from another camp by celebrating nonconformity. Here’s a snippet from the inspirational talk:
Murray (Tripper Harrison): Even if every man, woman and child held hands together and prayed for us to win, it just wouldn’t matter, because all the really good looking girls would still go out with the guys from Mohawk ’cause they’ve got all the money! It just doesn’t matter if we win or we lose.
Campers and Counselors: IT JUST DOESN’T MATTER! IT JUST DOESN’T MATTER! IT JUST DOESN’T MATTER!
Thirty six years since the release of Meatballs, I find my mind drifting back to Bill Murray’s humorous exchange with his dejected campers. (In some ways, he may have been speaking directly to movie-goers.) I address legitimate concerns about risk assets regularly. And yet, sky high stock valuations do not matter in an era of worldwide central bank rate manipulation. I chronicle the good, the bad and the ugly about the economy daily. And still, it just doesn’t matter to the risk-on herd.
For example, it has been well-documented that the price-to-book (P/B), price-to-sales (P/S) and P/E) of the median stock on U.S. exchanges have never been higher. Not even during the dot-com craziness in March of 2000. Similarly, U.S. stock market value as a percentage of gross national product is at 150%; that represents the second highest level in U.S. history. Warren Buffett wrote in 2001 that when one buys stocks in the 70%-80% range, the decision is likely to work out well. At present, the “Buffett Indicator” is 2x preferred levels. Does it matter? Not in the immediate term.
What about the economy that has been lumbering along at a 2% clip for six-and-a-half years? Those sub-par growth results in the recovery required extraordinary emergency measures of $3.75 trillion in asset purchases by the Federal Reserve System; it also required federal government excess spending of $7.5 trillion. More recently, industrial production – a measure of output for manufacturers, miners and utilities – dropped 0.2% in May and has not increased since November of last year. The Federal Reserve Bank of New York’s Empire State manufacturing survey registered a negative reading (-2.0) in June – its second negative report in the last three months. Does it matter? Not particularly.
In contrast, there are a few things that may still carry weight with the global investing community as we move forward in 2015. For instance, the evidence surrounding the potential for a disorderly exit by Greece from the euro suggests that markets may struggle a bit more than most media pundits are willing to acknowledge. More importantly, recent downshifts in market breadth have convinced me that a defensive allocation is warranted.
Keep in mind, when investors are gaga for risky assets, they often acquire them across the board. Yet both the NYSE and the S&P 500 have seen a definitive breakdown in the number of advancers compared with the number decliners. The NYSE Advance Decline Line (A/D) has not been this far below its near-term 50-day moving average since the October swoon and the November “Bullard Bounce.”