Night and Day

"I actually think the insanity of the late 1990s is repeating itself."

- Julian Robertson, quoted in Value Investor Insight, 11/30/06


"We reiterate our (wildly) bullish opinion on US stocks. At this stage, owning US equities feels like stealing."

- Steven Vannelli, GaveKal Research, 12/4/06

I came across these two quotes from two highly respected Wall Streeters recently and wonder how is it that two intelligent camps can have such diverse opinions. It's like night and day! Truth be told, I have never understood the way Julian Robertson thought about the macro economy and the overall stock market. If you recall, Mr. Robertson shut down his firm precisely at the time when so-called "value stocks" - his bread and butter - were about to go through the roof on a relative basis. My sense is that the GaveKal guys are closer to the mark.

Apparently, Ken Fisher is in the GaveKal camp, according to a recent blog post by Rich Karlgaard at Forbes. See Rich's notes from a talk Ken gave recently:

Ken Fisher's Bullish Take On 2007

Ken Fisher spoke Sunday and today. Ken, of course, is the longtime Forbes columnist (22 years) who by day runs his $35 billion Fisher Investments firm in California. Some of his thoughts:

-- Markets are discounters of all known information.

-- Forget everything you know about P/E ratios. It is a meaningless figure unless you also know the cost of borrowing.

-- Invert P/E to E/P and you get "earnings yield"--a public company's after-tax cost of raising capital.

-- The S&P earnings yield is 6.8%. The 10-year U.S. Treasury bond is 4.45%. The gap will close. It always closes over time. If the gap closed simply by lowering the S&P earnings yield to match the 10-year U.S. Treasury bond, the market would go up 47%.

-- I am wildly optimistic about 2007.

More reasons why Ken is bullish:

-- Third-year presidential terms are usually big-growth years for the market. We haven't had a negative third-year presidency since 1939.

-- Around the world, companies are buying back their stock. We are globally destroying the supply of equities at a rate of 5% a year. This is mind-boggling.