Will Denyer of Gavekal Dragonomics issued a report that shows that the ratio of the US stock market value to the GDP measures at 155%, topping the 150% level in 2007 but short of the 180% level in 2000. When comparing the US stock market level to global GDP, the measure comes in around 37.5%, which normally has been a historical resistance point.

Denyer said that the indicator does not mean the market turns down tomorrow, or the day after, and that easy money policies can continue to push up asset prices to level that may not be justified in a normal environment.

To add to the overvaluation argument, Robert Shiller said he as thinking of lowering his own exposure to US equities in favor of depressed European companies. Shiller’s CAPE ratio is now at 27.5. It was 15 in 2009.

Low interest rates have helped support high stock markets in the US. Michael Feroli, chief US economist at JPMorgan says the bank’s models indicates that recent increased employment could push up wages and inflation leading to a faster rise in rates than anticipated.

The offset to some of the valuation arguments above is the global economy is improving, recession risks appear low, and the market continues to remain technically strong. So while the chance of a correction at anytime continues, as long as there is no recession on the horizon the risk of a bear market is low.

The market rallied 3% and oil shot up 7%, on top of a 6% gain the prior week. Employment numbers were very strong and treasuries were down on the week as 10-year yields climbed 0.26 to 1.94%.

US companies have been operating at very high profit margins for several years now as wages have stayed close to flat. If the economy continues to accelerate and if job trends remain strong at some point workers will get a bigger piece of the pie, and that will likely result in profit margins beginning a long anticipated reversion to the mean.

February is off to a good start so far as the market is up 3.34% this month. But that was after a disappointing January when the market fell just under 3%. We are often told that a down January means a down year. Since 1950, the SP500s median rise has been 0.6% from February to December when the market fell in January. Last year, the market was down in January and the market had a big rally the rest of the year. So last year this “wisdom” did not work. Nor did it work the two times prior when the market fell. So if you can’t rely on the January indicator you have to find some other robust market indicator, maybe like the Super Bowl indicator!

This does not mean there won’t be a correction. After all, there are some valid arguments that point to some overvaluation. It just means that a down January does not necessarily mean a down year.

Keith McCullough interviews Mario Gabelli.

Below is our 2014 Scoreboard which highlights returns (dividends included) of market index ETFs, sectors, fixed income and a few commodities.

The USA Minimum Volatility (USMV) fund led the way with a 16.32% return followed by the Vanguard MidCaps (VO). The SPY was up 13.46% and the VTI advanced 12.55%. The Vanguard Emerging Markets (VWO) fell just under break even at -0.05%.

In terms of sectors, Utilities (XLU) was the big winner at plus 28.74% with Healthcare (XLV) just behind at 25.15%. No surprise that Energy (XLE) lost 8.68%.

The TLT had a staggering 27.31% advance in the fixed income space, Preferreds (PGX) also moved ahead nicely at 16.30%. High yield had the lowest return at 1.90%.

The Fed came to the rescue as it has so many times. The market hit its low on Tuesday down 4.85% from its previous high, on worries about the fast declining price of oil and the negative implications for high yield debt as well as countries like Russia. But a Fed statement that there would be “considerable time” until rates are increased was enough to send the market flying higher, plus 4.3% for the rest of the week. A statement by a Fed official back in October helped turn the market around then after a 7.7% decline, as has similar statements over the last couple of years.

Bloomberg Graphics shows why lower oil prices are not leading to higher. Click to see.

Here are a few articles on the little known but maybe the best allocator of capital in recent decades or ever, Dr. Henry Singleton. Singleton built up Teledyne from the 1960s to the late 1980s at an incredible pace, and his secret, was to buy and sell at “cyclical junctures, doing the “wrong” thing when it was really the right thing and the opposite. In other words, when no one wanted to invest or buy stocks Singleton was, and when his stock price was soaring he used it as currency to acquire other Companies.

Teledyne-and-Henry-Singleton-a-CS-of-a-Great-Capital-Allocator

A case study by Leon Cooperman on Singleton (2007)

Wesley Gray, a finance professor at Drexel and author of the book, Quantitative Value, recently launched a new ETF called US Quantitative Value. The fund was launched by ValueShares. Gray says “We believe our edge is robust: we design systematic investment programs that seek to exploit mispricing caused by irrational investors….QVAL seeks to exploit the so-called value anomaly in a systematic, high-conviction, tax-efficient, and affordable way.”

Samuel Lee of Morningstar wrote a good review on the fund. Click to read.

Value Investing and the Mis-measures of Modern Portfolio Theory with Bruce Greenwald (September 2014).