A television shows a CNBC headline "Dow Sets All-Time High" Photo: Reuters, Brendan McDermid
A television shows a CNBC headline "Dow Sets All-Time High" Photo: Reuters, Brendan McDermid

After three days of Jeremiads from all the major financial press (Bloomberg, Wall Street Journal, Financial Times) about the collapse of Trump’s agenda and his inability to govern, the market decided to ignore last Friday’s aborted health care vote and concentrate on valuations.

Asia Unhedged never thought the health care bill added up to a hill of beans in this crazy market, as we wrote yesterday. All the world’s developed market health care systems are in trouble because of rapidly aging populations, and there simply is no short-term path to a system that will make most people happy.

Biotech could in the long term cheapen health care costs, but that won’t happen with a single piece of legislation. Markets may not quite be rational, but they aren’t stupid, and investors looked past the hand-wringing in the media and kept buying equities.

We simply aren’t worried about the S&P: at a forward P/E of a little over 16 times earnings, or an earnings yield of over 6%, equities are fairly valued against alternatives. The S&P’s long-term average P/E is about 16, so the market isn’t cheap, but neither is it stupid rich.

We’ve indicated our belief that Asian emerging markets and Germany’s DAX would outperform the S&P this year as lower valuations overseas attract flows. But there is no reason to expect a crash, not with a pro-business administration and a cautious Federal Reserve.

There really is a problem with the bias of the financial media: The Davosians still can’t stand the idea that they were bested by a gaudy real-estate developer who speaks with a thick Queens accent and hosts beauty pageants. No fake financial news on this page.