Doug Kass: You Can Call Us the 'Dodo Bears'

Equities continued to advance on Monday and that ascent continued early this morning.

The northerly move seems uninterested and oblivious to uninspiring market breadth: 

Nor is the market concerned about fatuous and feckless policy like erratic tariffs and absence of fiscal discipline. It is also not moved by uncooperative and highly partisan politicians in Washington, who are likely leading us to a government shutdown in February; very expensive valuations; an equity risk premium that has become an equity risk discount; parabolic moves in precious metals; a breakout to the upside in other commodities (leading, in part, to sticky inflation); evidence of rising levels of speculation; investor complacency; a narrowing in the internals; rising Japanese government bond yields, the precarious state of AI capital spending vs. projected returns (on that investment); and a host of other headwinds often mentioned in my Diary.

It seems the voting machine is overwhelming the weighing machine these days...

And now bears are going the way of the flightless and extinct dodo bird - rapidly becoming an endangered species:

The principles of "value investing" and "margin of safety" have become anathema to market participants as the advance in stocks continues to be propelled by the growing dominance of passive products and strategies which are getting massive inflows:

Those products and strategies, which are stirred by machines and algorithms, don't think and they have no emotion — they worship at the altar of price momentum.

And stock prices are rising.

The Dunning-Kruger Effect

As I have previously mentioned in The 'Happy Meals' Won't Last Forever (as illustrated in Wally Deemer's McDonald's  (MCD)  observation in the 1970s when earnings per share compounded at a +26% annual rate but the price-to-earnings dropped from 77-times to 8-times) history is littered with periods in which high valuations were a poor launching pad for future investment returns:

Bukowski's quote reflects the paradox that smart people, aware of complexity, are prone to doubt. But less-knowledgeable individuals often possess overconfident certainty leading to an imbalance where uninformed voices dominate.

This links to the Dunning-Kruger Effect, where incompetence masks itself.

You might find some of Dunning-Kruger in the business media today... frankly I discover it everyday.

Happy meals won't last forever.

This commentary was originally posted in Doug's Daily Diary on TheStreet Pro.

At the time of publication, Kass had no positions in any securities mentioned.