Sex, Botox and Bull Markets

It’s the morning of March 31, 2014 and I am awake and listening to the business news on BNN TV. The announcer is interviewing an analyst from Wall Street who is supposedly famous for his market calls. He is pushing for bank stocks to join the so-called bull market which has been in existence. He must have mentioned “bull market” at least a dozen times while pushing the purchase of U.S. banking stocks. I could not help but remember a comment from my idol of investment management, Warren Buffett, when he said that “a bull market is like sex, it really only begins to feel good when it is almost over.”

Two weeks prior to this – on March 13th – I received a memo from someone who competes with Warren Buffett as one of my best investors on the planet – Seth Klarman – who said recently, “In the face of mixed economic data and at a critical inflection point in Federal Reserve policy, the stock market, heading into 2014 resembles a Rorschach test. What investors see in the inkblots says considerably more about them than it does about the market. If you were born bullish, if you’ve never met a market you did not like, if you have a consistent short memory, then stocks probably look attractive, even compelling.

“But if you have the worry gene, if you’re more focused on downside than upside, if you’re more interested in return of capital than return on capital, if you have a sense of market history, then there is more than enough to be concerned about.”

A skeptic would have to be blind not to see bubble inflating in junk bond issuance, credit quality and yields, not to mention the nose bleed stock market valuations of fashionable companies like Netflix, Tesla and Facebook.

Both Klarman and I see that there is a growing gap between risk and inadequate potential return almost everywhere we look and Warren is right about sex and bull markets.

To quote Klarman once again, “Whether you see today’s investment glass as half full or half empty depends on your age and personality type as well as your lifetime experiences in the market and how you interpret them.”

It is my assessment, as is Klarman’s, that the Federal Reserve has provided more stimulus than is safe and that, plus low interest rates and suppression of volatility, has triggered a market full of “speculative froth” and is a direct result of the Botox economy created by Dr. Bernanke and his money printing machine. 

It’s the tail end of sex and the bull market, enjoy it.