Vexing Valuations - 03/08/11

Tension between cyclical tailwinds and secular headwinds makes valuation and stock market decisions difficult.

Over the past six to nine months I have addressed the tension between the cyclical tailwinds of monetary and fiscal stimulation (and the economic and growth it brings forth) and the deflating impact of secular headwinds and challenges.

This tension, like the two-headed Janus I wrote about in yesterday's opening missive, makes valuation and stock market decisions so difficult for many of us.

I found two recent ludicrous quotes especially humorous on the subject, in context and in rationale.

First, some more doubletalk from former Federal Reserve Chairman Alan Greenspan in a CNBC interview on "Squawk Box" last week:

"There is no question that the momentum of this economy, leaving out the oil price issue, leaving out euro problems that have emerged, and very specifically leaving out the budget problems, this economy is really beginning to pick up momentum. ... The fascinating issue for forecasters is, how do you factor in all the negatives."

-- Alan Greenspan, CNBC interview

The second quote comes from a JPMorgan semiconductor upgrade last week that underscores that the QE3 macro questioning is permeating Wall Street company analysis:

"And our bearish view on the economy has been wrong. Our previous cautious stance on the semiconductor group was also driven by our belief that the stimulus-driven economic recovery would eventually collapse. While we continue to believe this is likely at some point in the future due to unsustainable debt, we also view it as unlikely to happen for at least the rest of the calendar year and it also appears likely that QE2 will be followed by QE3, keeping the economic recovery going for at least another few quarters."

-- JPMorgan research

Whatever happened to straight talk about the state of the world?

Whatever happened to company and sector analysis?

Whatever.