Those of a certain age will remember the words of this title as a commercial by a company that manufactured audio cassettes. The point was, the tape recording was so real it could not be distinguished from a live performance. That’s how we feel about the market these days. It looks like the real thing, but perhaps it is not. Certainly the media is worried that we’re about to crash at any moment, as are many investors. And woe to the investor who is still sitting on the fence about buying stocks. What to do? How to tell, if it’s real – or not?
We believe that valuation is the most enduring “tell” for market returns. Sentiment can interfere with valuation, as we saw in 2000-2002 and in 2008-2009. But in the end, buying assets cheaply will insure a decent return eventually. Currently, valuation is reasonable – not high but not particularly low either. This, combined with the Fed’s activities and improvements on the margin in the deficit, the jobs picture, and growth prospects provides the impetus for further appreciation. No doubt interruptions like a North Korean nuclear test or some other catastrophe will supply a reason for volatility – it’s the nature of markets to shift from rationality to sentiment. But in general we’d say this bull market is live, not Memorex.