You gotta love Ron Insana, the CNBC financial commentator and author (Who among these television talking financial heads hasn't yet written a book about investing?).
The guy's insane. Could be all those bright lights.
He wants investors to accept another one of the Fed's cockeyed inflation indicators, the PCE, used to gauge inflation. Even the formal name should send doubts scurrying up your spinal cord--personal-consumption expenditure deflator.
At your next cocktail soiree we challenge you to take your drink, chime the glass a few times to get everyone's attention, then hold the tip of your tongue between your dominate hand index finger and thumb and repeat out loud as fast as you can three times: personal-consumption expenditure deflator. If that don't do it, we'll send you a prescription for some stronger medicine.
According to Insana--and don't get us wrong; he's probably a well-meaning, nice guy-- this indicator says current inflation is less than 1 percent. And, as he goes on, to get a fix on equity valuations you simply subtract the PCE ( less than 1 percent) from 20 to get a fair market value P/E. So here we go: 20 minus less slightly less than 1 equals 19 point something less than something less than 1.
He then cites new Fed Chair Janet Yellen as on the record to hold her interest-rate-hiking trigger finger until unemployment settles somewhere between 5.2 and 5.6 percent. If the exactitude here scares you, just breathe deeply 100 times while sitting in the lotus position in your pajamas for five consecutive days while watching Good Morning America for its intellectual content.
His next bit centers on 2007 when the Fed hiked interest rates 17 times in 18 months. The implied assumption here--and we all make them--is the catalyst has to be same. It doesn't.
The real question is how high were interest rates when the cranking started and how high did they have to go before reaching the tipping point? In short, what were the norms then and what are they now?
Nearly all agree that this has been an abnormal era of low interest rates and easy money. In 2007 the Fed titrated the rates like a bunch of mad chemists in a lab searching for the correct formula. And in the end they found it.
A few years ago a business associate lost a seven-figure job for doing what everyone else had and was still doing. Personalities and individual likes and dislikes aside, he made an incorrect assumption. Investors make them all the time. If I buy the stock it's got to go up.
Many of today's media mouths in one breath give lip service to the belief that history never exactly repeats itself and in the next breath roll out reams of linear data to buttress their point as why it won't or can't happen yet.
So in Insana's linear world, though he would most likely deny it, it will take a similar wind to blow this stock market Humpty Dumpty off the wall.
Insana concludes by pointing out the common guy in the streets ain't in yet. Interpretation: MSM and Wall Street have much more shilling to do.
http://www.cnbc.com/id/101614178
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