Deja Vu All Over Again

I had occasion to be in my car this morning, listening to CNBC, when the host of the show (Bob Pisani, a very nice gentleman on the few occasions I have had the opportunity to meet him) was arguing with a modestly bearish guest. Yes, there are a lot of reasons for concern noted by bears, but the market is clearly disagreeing with their pessimistic views. Stock indices are hitting cycle highs and seem poised to go higher. He and many other optimists seem to be of the opinion that since the market is going up, it is telling us that the economy is ready to find a Goldilocks "Ahhh, this porridge is just right!" soft spot on which to land.

However, as I remember it, the end of the Goldilocks fairy tale is not so sanguine. The final lines are "Just then, Goldilocks woke up and saw the three bears. She screamed, 'Help!' And she jumped up and ran out of the room. Goldilocks ran down the stairs, opened the door, and ran away into the forest. And she never returned to the home of the three bears."

But Bob makes a good point, which should give us pause. How does one argue with Mr. Market? Shouldn't the collective wisdom of hundreds of millions of investors give us reason for concern when they clearly disagree with our own modest insights? Fighting the trend is never a good way to stay alive in today's markets.

To answer the question we are going to review a little history. Specifically, we are going to go back 6 years, to September 1 of 2000. Coincidentally (or not?), September 1, 2000 was also a Friday preceding Labor Day. We will look at the stock market, the yield curve, and bubbles on that day and compare it with today. I think you will find it informative. (For those of you printing this out, it…