Goldilocks is featured prominently this morning in the front-page Wall Street Journal cover story, “Why Market Optimists Say This Bull Has Legs”.It’s a great article. That said, I always get a little nervous when major publications run these cover stories (Business Week boasts a particularly bad record of calling market tops with their cover stories).
I’d prefer this to remain the "greatest story never told."
Incidentally, I didn’t see a single reference to President Bush’s slashing of tax rates on capital. I believe this is a key factor in this rally. The benefits of low capital costs and high investment returns have added substantial liquidity to stock markets while, at the same time, have enhanced after-tax valuations.
Nevertheless, the WSJ story does highlight a key theme of mine: The rise in profits has been greater than the increase in stock averages. This is especially true when profits are capitalized by the 10-year Treasury bond yield, an analytic developed by Arthur Laffer that has stood the test of time.
This analytic device was very helpful in calling the market top in 2000. But today, it shows that considerable upside running room is still left for the major stock indexes.
