Market strategist Ed Yardeni sees the secular bull market continuing as various bears like Nouriel Roubini and John Mauldin either are turning optimistic on equities or adjusting their endgame scenarios. Yardeni told attendees at the third annual Fiduciary Investment Research Managers Summit (FIRMS) in Boston that he thought by applying a forward price/earnings multiple of 15.4 to the S&P 500, the index could rise to 2014 by the end of 2014.
Nonetheless, his biggest fear is a "melt up" in equity prices. Former Federal Reserve Board chairman Alan Greenspan's remark on Bloomberg television earlier this week that stocks were still cheap only confirmed that worry.
Bears like Roubini and Mauldin are highly intelligent people with great insights, but they have been been way too bearish, says Yardeni. Roubini recently turned modestly bullish and called U.S. stocks the best place for global investors, while Mauldin's commentary has refocused on breakthroughs in technology and health sciences. The "whole trick to this bull market has been to hang on for dear life and not get off" when things look scary, he said.
"We've had some nasty corrections," Yardeni noted. In 2010, the possibility of the Euro falling apart was not remote. That occurred again in 2011, when it looked for a while like the United States might not pay its debt.
But "the end game is clearly wrong" because the three "richest" men on earth -- Fed Chairman Bernanke, European Central Bank Chairman Draghi and Bank of Japan Chairman Kuroda -- won't let it happen.
The trauma that the global economy experienced in 2008 is "critically important" to understanding where we are today, Yardeni said. Businesses are increasing dividends and buying back stock to the tune of $2.6 trillion since the Great Recession ended.
While the bears like to point to the correlation between the Fed's QE programs and the rises and dips in stock prices since 2009 as an explanation for an artificial surge in equities, Yardeni said the correlation between prices, buybacks and dividends is just as compelling.
This whole "searing mentality" is great for stock prices, but not for the economy or labor market, Yardeni acknowledged, because corporate managers believe there could be another endgame. The current thinking pervading corporate America's boardrooms is: "If you want to hire somebody, don't; hire a temp or better yet, a consultant," Yardeni said.
Yardeni conceded that the coordinated central bank experiment going on since 2008 may not end well, but "so far it hasn't."
Even though analysts keep lowering earnings forecasts, they reduce their estimates to "pretty high" levels. "Analysts never see a recession coming," Yardeni conceded.
Yardeni's own estimates call for the earnings of the S&P 500 to reach $110 in 2013, $120 in 2014 and $130 in 2015. He admits a partiality to nice round numbers.
Investors are understandably suffering from "anxiety fatigue" with all the antics in Washington. "There is no difference between Democrats and Republicans. They are all corrupt," he said.
"All they care about is money," so they manufacture crises to raise money. At one point, "[Texas Senator] Ted Cruz was raising about $2 million an hour." Paraphrasing Mark Twain, Yardeni said, "We have the best politicians money can buy."