Morning Note: Patience, an "absolute must!" --- (a must-read post for clients!)

To be sure,

"if patience is a virtue in life, it is an absolute must in trading and investing."

--Randy Finney (technical analyst and trader)

If you tend to think of stocks and your long-term portfolio synonymously, well, if you're a PWA client, I'd say don't! But recognizing that Wall Street has done such a masterful job of engraining such thinking into investor-psyche, the following is intended for those who do.

Let's update a few charts and ponder whether now is the time to abandon our present strategy (call it a moderate-risk, vastly diversified, and hedged against a swift major decline in stocks strategy), and adopt the approach we employed unwaveringly from March '09 through August '19, during the bull market that separated the tech and real estate bubbles, during the bulk of the 90s decade, yada yada?

Starting with a 30-year chart of the price-to-earnings ratio (P/E) for the S&P 500 Index (top panel), along with the S&P 500 price chart (bottom panel)... Note the price action during periods (white-shaded areas) where the P/E ultimately came off of levels above 23... And note where the P/E sits today:

Those three episodes prior to the current, by the way, represent 50%, 20% and 27% declines respectively... And note, the '08 experience (57% decline [yellow-shaded instance]) actually occurred from a much lower P/E at the onset.

Same thing for the even more telling price-to-sales ratio, when it rose above 2:

OOF!!

And the price-to-book ratio above 4:

YIKES!!!

Not to mention the Shiller CAPE (cyclically adjusted P/E) Ratio (currently 34.54):

Here’s Jeremy Grantham on the history surrounding the current level:

"...there has never been a sustained rally starting from a 34 Shiller P/E. The only bull markets that continued up from levels like this were the last 18 months in Japan until 1989, and the U.S. tech bubble of 1998 and 1999, and we know how those ended. Separately, there has also never been a sustained rally starting from full employment.

The simple rule is you can’t get blood out of a stone. If you double the price of an asset, you halve its future return. The long-run prospects for the broad U.S. stock market here look as poor as almost any other time in history. (Again, a very rare exception was 1998-2000, which was followed by a lost decade and a half for stocks. And on some data, 1929, which was famously followed by the Great Depression."

And how about the so-called "Buffett Indicator" (market value to GDP ratio):

Or, among a number of other items I think I'll include in tomorrow's video, investment advisor sentiment:

While the above in no way ensures that the present cycle will end in tears (it just emphasizes the current somewhat-precarious risk/reward setup), note, per the above: 

"...tops usually form over weeks (and sometimes months) while bottoms can occur quickly."

And per Peter Boockvar:

"...a parabolic price move is a parabolic price move, whether with one stock or many. I don’t care when it has taken place. It is a vertical move in a stock that always ends the same way, about back to where the move started and I don’t care what the stock symbol is, what medical disease they are solving and what greatest technology ever product they have."

So, as for my response to the above question (should we carry the equity exposure we typically do amid more attractive valuations?), well, that would be a no -- at least for the time being.

Stay tuned...

Asian equities mostly rose overnight, with 10 of the 16 markets we track closing higher.

Europe is just leaning green so far this morning, with 10 of the 19 bourses we follow trading up as I type.

US equity averages are mixed to start the session: Dow up 25 points (0.06%), SP500 up 0.11%, SP500 Equal Weight down 0.20%, Nasdaq 100 up 0.28%, Nasdaq Comp up 0.21%, Russell 2000 down 0.54%.

This morning the VIX sits at 13.58.

Oil futures are up 1.15%, nat gas futures are up 1.03%, gold's down 0.57%, silver's down 0.06, copper futures are down 0.34% and the ag complex (DBA) is up 0.91%.

The 10-year treasury is down (yield up) and the dollar is up 0.25%.

Among our 36 core positions (excluding options hedges, cash and money market funds), 13 -- led by Dutch Bros, EIDO (Indonesia equities), DBA (ag futures), XLE (energy stocks) and Range Resources -- are in the green so far this morning... The losers are being led lower by AT&T, XLRE (REITs), SPTL (long-term treasuries), GDX (gold miners) and XME (base metals miners).

To repeat:

"...a parabolic price move is a parabolic price move, whether with one stock or many. I don’t care when it has taken place. It is a vertical move in a stock that always ends the same way, about back to where the move started and I don’t care what the stock symbol is, what medical disease they are solving and what greatest technology ever product they have."  --Peter Boockvar

Have a great day!
Marty