01 Nov The Lato Letter – Market Melt-Up
In previous issues of The Lato Letter I have mentioned both the work of Dr. Ed Yardeni and the possibility of a market melt-up. The latest issue of Barron’s brought these two thoughts together with an article entitled “Lifting the Odds for a Market Melt-Up”, in which Dr. Yardeni is interviewed.
Dr. Yardeni started his career as an analyst at the Federal Reserve before moving to the investment industry in positions such as the chief economist at E.F. Hutton and Prudential Securities, chief investment strategist at Deutsche Bank, and now president and chief investment strategist of Yardeni Research.
In the article, Dr. Yardeni says, “Since the beginning of the year, I’ve been forecasting 60% probability of a rational exuberance scenario, 30% melt-up, and 10% meltdown. I’m still there, but I’m wavering and leaning toward the melt-up.”
He forecasts that the S&P 500 Index currently at 1771 could hit 2014 in 2014, a rise of just under 14% with the following rationale, “I’m looking for $110 a share in S&P 500 earnings this year, $120 a share next year, and $130 a share in 2015. So, with relatively reasonable assumptions on valuations, or about 15.5, you get a year-end target of 2014.” He goes on to say, “my main fear is that we have nothing to fear, so we might actually get there ahead of schedule.”
Obviously, Dr. Yardeni is but one voice but a voice that is consistently logical and approaches markets from a top-down macro perspective. Although Padlock’s perspective is very much bottom up, it’s reassuring to look for a strong tail wind to drive the valuations of its holdings higher.
If you would like to receive a copy of the entire interview, just let me know and I will be happy to send it to you. Enjoy the day as we remember the veterans that sacrificed their lives for the freedoms, liberties and bountiful lives that we cherish today.
This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change without notice.
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