It is official. We are all just screwed. Janet Yellen told us that stocks are overvalued and potentially dangerous. Warren Buffett said that if interest rates go higher we will find that current stock valuations are high. Of course interest rates have moved higher all over the world as bonds have sold off on inflation fears and the 3,907 other reasons offered up by traders. At the Sohn Conference David Eiinhorm warned us that fracking stocks are dangerous. Jay Walker, a co-founder of Priceline (PCLN) talked of an increase in black swans that could have serious economic and social consequences. Social media earnings are a disaster so far. At the SALT Conference in Las Vegas peter Schiff suggested that the Fed is living in fantasy land and “With these assumptions baked into portfolio dispositions investors risk being caught wrong footed when the ugly truth is finally accepted." Mohamed El-Erian told SALT attendees that, “QE was a painkiller we took too much of. The big problem we face is liquidity.” He further speculated that government could not control as much as they think and 2015 may not be a great year for global economies. Michael Novogratz the CEO of Fortress Investments said that the bull market in binds is over and yields are going higher. Even Leon Cooperman who thinks we move a little higher this year said “The outsize gains for the equity market are behind us. That game is over.”

Given this incredibly gloomy outlook provided by some very smart people what should we do now? Nothing. NOT. ONE .THING. Look, no one wants a big pullback in stock prices more than me. I would dearly love to see a big flashy scary panic inducing crack in the stock market. Those situations are the easiest time to get positioned for huge gains over the next several years. I would much rather debate which 100 cheap stocks I was going to buy than searching for days and weeks at a time to find a single investable idea. But to add a touch of reality to the situation we are still just 2% off the highs right now. Nothing has changed except the tone of forecasting and predictions and that is pretty much worthless. Keep in mind that it took almost 4 years after Alan Greenspans suggestion of irrational exuberance. There are plenty of things that could lead to a big selloff but I have no idea when one might happen.

Prediction about markets is just folly. Even Warren Buffett and Charlie Munger said at last weeks Berkshire meeting that they were not very good at predicting things out into the future when it comes to grand macro matters. As Charlie said “Since we failed to predict what exists now, why would anybody ask us to predict what’s going to happen in the future?” Warren added “We think any company that has an economist certainly has one employee too many.” It is almost impossible to do correctly constantly although if you make a lucky guess you do get quite a bit of publicity and will probably make a few bucks before your next dozen or so market calls have disastrous results and the good people break out the tar and feathers.

Tomorrow when I get up, after my coffee and walking my crack staff (The best part of dog ownership is that starting your day picking up steaming poop means it is all pretty much up from there),I will do the same thing I always do. I will run my screens, check 13d and G filings, read any 13f filings that came in early, write my articles, check the news on my stocks and hopefully finding a nice bank takeover and do the same thing as I do every day. All the predictions and theories are nice and fun to read but the real money is made by reacting to what the market does and not by attempting to predict what might happen at some point in the future.

After Daniel Loeb called Warren Buffett out for his deceptive comments yesterday saying “"I love reading Warren Buffett's letters and I love contrasting his words with his actions.I love how he criticizes hedge funds, yet he had the first hedge fund. He criticizes activists, he was the first activist. He criticizes financial services companies, yet he loves to invest in them. He thinks that we should all pay taxes, yet he avoids them himself “ I spent a little time thinking about how Warren really made his money. What made Buffett and Munger rich in the first place is much different than what they have to do for reasons of size at Berkshire today. I wrote about this on Real Money today and summarized their initial path to wealth as “Buy "cigar butts." Buy illiquid inefficient markets (sounds a lot like community banks doesn't it?) and hoard cash to put to work in a crash.” Easy in theory, harder in practice but we will keep trying!

Cheers

Tim

Song of the week

Hopefully all the https://www.youtube.com/watch?v=rPFGWVKXxm0 leads to an inventory creation event