主席，这文可给你些安慰，不过只30%概率。

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Lifting the Odds for a Market Melt-Up

Four mornings a week, clients and members of the press receive The Yardeni Research Morning Briefing, an e-mail filled with well-reasoned views about the economy and financial markets that are refreshingly devoid of attitude and as solid as Ed Yardeni himself. One recent piece of counsel—that the bull market would not be derailed—paid off in spades for anyone who listened.

Yardeni, 63 years old, has been dispensing advice for more than 30 years, as an analyst at the Federal Reserve, 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. Throughout his career, Yardeni has watched two kinds of screens: market data and feature films, which he reviews for clients. Last week, we asked him about both.

Barron's:  What's with the movie reviews?







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imageKen Schles for Barron's
"Investors have learned that any time you get a selloff, you want to be a buyer. The trick to this bull market has been to avoid getting thrown off." -- Ed Yardeni
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Yardeni: I've been doing it since my career began in the early 1980s. My wife and I would see a movie on Friday, so I'd add a short review at the tail end of my economic and financial outlook for the Monday meeting on Wall Street. I'd have ratings of three pluses all the way down to three minuses. I often tried to relate the movies to markets or human behavior, or see how they're reflected in the movies. As an investment strategist, you gotta open your eyes to different disciplines. At the end of the day, this is all about forecasting human behavior. The more you see movies, read literature, interact, figure out what makes people tick and what's important to them, the better you are at forecasting.

So, the Standard & Poor's 500 will hit 2014 in 2014.

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. As I've been writing, my main fear is that we have nothing to fear, so we might actually get there ahead of schedule.

You worry about a melt-up, a swift and unsustainable rally. How will we know we're in one?

Plenty of stocks and industries have gone nearly vertical in recent weeks. Investors are inured to bad headlines; they see so much liquidity around the world. 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. Like the Fed, I'm data dependent. I've set up various parameters to watch. I look at Investors' Intelligence—the number of bullish investment advisors divided by bearish. It recently shot up to 3.54. That tells you there aren't too many bears left, and that the market is overbought and at least prone to a correction.

It's probably better to look at valuation. If we saw the market zoom up to 17 to 19 times next year's estimated earnings of $120 a share, that would be a melt-up situation that's vulnerable to a very nasty correction. One trigger would be the Fed taking note of the possibility of a speculative bubble. I doubt they would do anything radical with quantitative easing or the fed-funds rate, but they still have the power to raise margin requirements. And clearly there's talk out there by people like Bill Gross and Larry Fink and Warren Buffett, saying there are slim pickings out there for anybody looking for undervalued stocks. The headlines are getting bullish. The excitement about initial public offerings means a frothy environment that often coincides with melt-ups. If we're going to melt up, that doesn't mean you sell here. You may want to participate. But you have to worry about the downside. The greater the multiple, the more downside there is between the value of the stock and its underlying earnings.

How should people be positioned in the last two months of the year?

Since the beginning of the bull market, there have been pretty fierce corrections, and you'd have had to be an extraordinarily insightful investor to get out in front and get back in at the bottom. I'm sticking with my target. My concern is that between now and the end of January, the market could really move a lot higher, just in time for [incoming Federal Reserve chief] Janet Yellen to have to figure out what she wants to do about the Fed contributing to a bubble environment in the equity markets. Her press conference will be March 19. It's hard to say what she will say. The Fed officials are in a real predicament because they kept telling us they're data dependent, and at the same time, they're saying they don't trust the data, particularly the unemployment rate.

What will the data tell us?

The purchasing-manager survey and regional survey by the Fed look good. I could see the unemployment rate falling to 7% in February. They would have that data for the March meeting. If the market is a lot higher, they will really have to start tapering. Yellen has a real job ahead of her in exiting from this period of ultra-easy policy. I don't think it's in her DNA to walk away from ultra-easy policy. If she is forced to start tapering by events like a lower unemployment rate and a stronger stock market with elements of a bubble, she'll make it clear that the Yellen-led Fed will keep fed funds near zero for quite some time. So the problem with a melt-up is it really creates a mess for monetary policy and forces the Fed to react in such a way that it will lead to a significant correction in the spring. I would put 30% odds on that.

Tell us about the trauma of 2008 and why it still matters.

We are all humans and adapt our behavior to the most recent events, especially dramatic ones. 2008 was a professional near-death experience for lots of people. The business community, in formulating its plans, is still incorporating the possibility of a crisis like we had in 2008. It is operating very conservatively even though profits are at record highs. Pimco has called it the new normal.




It has been very bullish for stocks, because that behavior has led to record profits—record cash flow used to buy back shares. Corporate treasurers bought back $1.6 trillion of shares for their S&P 500 companies since the first quarter of 2009 and paid out $1 trillion of dividends. The new normal also kept the lid on inflation because labor markets are slack. It has also given a tremendous boost to the new industrial revolution, where companies use technology to boost productivity and keep a lid on labor costs.

Now, policy makers responded to the trauma of 2008 by pledging they would do whatever it takes to avoid another Lehman-style calamity. Most famously, Mario Draghi did so in July 2012. Central banks have put serious cash to work. So why aren't businesses more relaxed, if they're back-stopped by the central banks? The answer is that the policies the central banks have adopted are so out there, so unconventional, so reckless, they don't trust it will end well. One study done by the Federal Reserve of San Francisco concluded that if it weren't for policy uncertainty, the unemployment rate would have been down to 6.5% at the end of 2012. Unemployment is clearly driving Fed policy.




Buying Power

Stock buybacks have driven the market sharply higher since the financial crisis.







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I have met a lot of institutional investors I call "fully invested bears" who all agree this is going to end badly. Now, they are a bit more relaxed, thinking it won't end badly anytime soon. Investors have anxiety fatigue. I think it's because we didn't go over the fiscal cliff. We haven't had a significant correction since June of last year. We had the fiscal cliff; they raised taxes; then there was the sequester, and then the latest fiscal impasse. And yet the market is at a record high. Investors have learned that any time you get a selloff, you want to be a buyer. The trick to this bull market has been to avoid getting thrown off.

What should people own?

I don't do individual stocks. This market has been driven by consumer discretionary, finance, and industrials. I would stick with them. You go with what's going, which can be dangerous, of course, if suddenly we have something really significant to worry about. But for outperformance, some sectors are auto manufacturing and parts, asset managers, biotechnology, aerospace and defense, air freight and logistics, data processing and outsourced services, and oil-and-gas equipment and services.

How about housing?

There's a lot of pent-up demand, but it's still hard to get a mortgage; mortgage lenders are still shy about lending. That goes back to the trauma of 2008. That's why we haven't seen housing starts recover more significantly, and because there's a shortage of housing relative to demand, we've seen home prices recover smartly. It's a slow recovery. I don't have a problem with home builders, but other opportunities are less volatile.

What are your thoughts about bonds?

The Yellen Fed will continue the same policy as the Bernanke Fed. Even if they taper, they might lower the threshold on unemployment—the rate at which they talk about tightening—from 6.5% to 5.5%. The Yellen Fed will do its utmost to keep short-term rates near zero for 2014 and 2015 and even into 2016. They are likely to be forced to do some tapering, so I think 2.5% to 3% is the range for the 10-year for the next couple of years. Inflation will stay at 1% to 2%. We won't see much action in the bond market.

And the rest of the world?

Some of my accounts are saying, "If you're looking for a place to invest where revenues, margins, and valuation have been weak, and there's potential for upside, then Europe is the place." It has had quite a run already. But the data recently is not that compelling. It shows Europe hit bottom, and the recovery is a very slow one. As for Japan, I'm skeptical there is a lot more upside. I'm not sure we can compare Shinzo Abe with Ronald Reagan or Margaret Thatcher. I think he will disappoint in his ability to reform the labor markets and agriculture and other areas. If he doesn't deliver, then the market may have already rallied as much as it's going to.

Then there are emerging markets—those that make money by exporting commodities and those that make money by exporting manufactured goods produced by cheap labor. Labor costs have been going up a lot. In China, they've been raising minimum wages for the past few years. So margins are getting squeezed over there. In Bangladesh and South Africa, labor is still cheap but not as cheap as a few years ago. A lot of that labor will increasingly be replaced through automation and robotics. Google announced at the beginning of the year that Google Glass will be produced not in China but in Santa Clara, Calif. Then with the commodity producers, I think the supercycle that began in December 2001, when China entered the World Trade Organization, is over. I'm not saying commodity prices are going down. But if they stay flat, that will squeeze margins for a lot of these countries.

Lastly, any movie recommendations?

We just saw 12 Years a Slave, which was hard to watch; the violence was unrelenting, made you see a bit of the constant terror slaves lived under. You get educated, suffer a little, empathize. I would give the Oscar to Chiwetel Ejiofor for this movie. And Cate Blanchett did a great job in Blue Jasmine, playing what Bernie Madoff's wife might have gone through.

Thanks, Ed.

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