Cramer Vs. Klarman - You Get What You Pay For

Tyler Durden's picture

Seth Klarman's comments on "The Truman Show" market and "born bulls" appeared to upset the status quo today on CNBC leaving none other than Joe Kernan and then later, Jim Cramer questioning Klarman's credentials with a passive-aggressive "when did Klarman turn negative? We should look into that..." question. We found it intriguing and wondered how much the investing public weights the differing views of these veritable titans of stock market wisdom. The answer - a market-based answer - lie in the purest measure of all... the cost of acquiring their knowledge...

 

Cramer dismisses Warren Buffett and Seth Klarman's call for the market as being "fully valued" or "over-valued"

Money-shot at 33 seconds... "well, I mean urr, when did Seth Klarman go negative? We should look into that.. was it last week? or a couple years?"

Of course, Cramer has nailed the turns too...as we noted here:

As a gentle reminder: At the end of October 2007, right before markets began their descent to their current lows Cramer gave out investment advice on his wildly popular show, Mad Money.

 

 

Here was his game plan at the time:

 

"You should be buying things and accept that they are overvalued, but accept that they're going to keep going higher.

 

I know that sounds irresponsible, but that's how you make the money.

 

Right now, up is down, left is right, peace is war."

 

Indeed.

And the final arbiter of the value of investment wisdom delivered by these gentlemen...

It appears the market has spoken...

You decide...

Though one can't help but see a resemblance to what Klarman described as "born bulls"...

What investors see in the inkblots says considerably more about them than it does about the market.

If you were born bullish, if you’ve never met a market you didn’t like, if you have a consistently short memory, then stock probably look attractive, even compelling. Price-earnings ratios, while elevated, are not in the stratosphere. Deficits are shrinking at the federal and state levels. The consumer balance sheet is on the mend. U.S. housing is recovering, and in some markets, prices have surpassed the prior peak. The nation is on the road to energy independence. With bonds yielding so little, equities appear to be the only game in town. The Fed will continue to hold interest rates extremely low, leaving investors no choice but to buy stocks it doesn’t matter that the S&P has almost tripled from its spring 2009 lows, or that the Fed has begun to taper purchases and interest rates have spiked. Indeed, the stock rally on December’s taper announcement is, for this contingent, confirmation of the strength of this bull market. The picture is unmistakably favorable. QE has worked. If the economy or markets should backslide, the Fed undoubtedly stands ready to once again ride to the rescue. The Bernanke/Yellen put is intact. For now, there are no bubbles, either in sight or over the horizon.

 

But if you have the worry gene, if you’re more focused on downside than upside, if you’re more interested in return of capital than return on capital, if you have any sense of market history, then there’s more than enough to be concerned about. A policy of near-zero short-term interest rates continues to distort reality with unknown but worrisome long-term consequences. Even as the Fed begins to taper, the announced plan is so mild and contingent – one pundit called it “taper-lite” – that we can draw no legitimate conclusions about the Fed’s ability to end QE without severe consequences. Fiscal stimulus, in the form of sizable deficits, has propped up the consumer, thereby inflating corporate revenues and earnings. But what is the right multiple to pay on juiced corporate earnings? Pretty clearly, lower than otherwise. Yet Robert Schiller’s cyclically adjusted P/E valuation is over 25, a level exceeded only three times before – prior to the 1929, 2000 and 2007 market crashes. Indeed, on almost any metric, the U.S. equity market is historically quite expensive.

 

A skeptic would have to be blind not to see bubbles inflating in junk bond issuance, credit quality, and yields, not to mention the nosebleed stock market valuations of fashionable companies like Netflix and Tesla. The overall picture is one of growing risk and inadequate potential return almost everywhere one looks.

There is a growing gap between the financial markets and the real economy.

 

h/t @Not_Jim_Cramer