To many in the credit markets, the stock market
looks a lot like Wile E. Coyote. It’s already way past the edge of the
cliff. Equity investors just haven’t realized it.

 

Globe and Mail Update, March 15, 2008 at 6:00 AM EDT

Wile E. Coyote’s futile attempts to catch his nemesis, the Road Runner,
would often lead him over the edge of a cliff, where the cartoon
carnivore would hang suspended in mid-air. Only when he looked down
would he crash to earth.

To many in the credit markets, the stock market looks a lot like
Wile E. Coyote. It’s already way past the edge of the cliff. Equity
investors just haven’t realized it. After all, even in a week that
ended with the shocking near-collapse of a financial icon like Bear
Stearns Cos. Inc., North American equities held up reasonably well.

“The equity market has sold off quite a bit since October but it’s
nowhere near the sweeping, Great Depression-esque, world-is-ending kind
of selloff in the credit markets,” said Dave Klein, a senior research analyst at Credit Derivatives Research, a California firm that tracks credit markets.

This is my exact view – the stock market is vastly over extended and
way too high given the absolute nightmare that’s been unfolding in the
credit markets. Some would say that bull markets die hard. I would
argue that we’ve never even broken the old inflation adjusted high of
2000 so we never really quite made it to new bull territory.