Dennis Gartman is the man behind The Gartman Letter, a daily newsletter discussing global capital markets. For almost 30 years, The Gartman Letter has tackled the political, economic and social trends shaping the world's markets. ETF.com recently caught up with Gartman to discuss the latest developments in the financial markets.
ETF.com: The stock market continues to hit record highs on a daily basis, with the Dow up 11-straight sessions through Friday [Feb. 24]. You characterized this rally as a "melt-up." Should investors be happy about it, or should they be concerned?
Dennis Gartman: They should be egregiously concerned, because they have to ask themselves if they honestly believe all of the benefits that have been put forth by the Trump administration are going to absolutely come to fruition.
Will there be tax cuts as consequential as Mr. Trump has indicated? There'll be tax cuts, but will they be as consequential? Probably not. Will there be infrastructure spending? Not a question. But will there be as much infrastructure spending as the markets seem to anticipate? Probably not.
Those things make it difficult to remain bullish of stocks at these levels. The market can go higher, but it is at levels I find to be nosebleed territory. People should be very careful up here. New purchases are to be avoided; old purchases should be hedged up in some fashion using derivatives or options; and bring stop orders up close behind the market.
ETF.com: From what I gather, you think Trump's agenda is going to be bullish for stocks, but not as bullish as the market is anticipating.
Gartman: Mr. Trump's agenda is bullish for the economy, but not necessarily bullish for stocks. That sounds illogical, but it's not illogical at all.
Why do stocks go up before economies come out of a recession? Because at the bottoms—when the monetary authorities become expansionary—that money finds its way into the capital markets, because it isn't needed in plants, equipment and labor.
You get that period of time that stocks take off on the upside and the economy continues to dwindle, and everybody wonders how stocks can continue to go up. That's what happens at bottoms.
On the other hand, at the tops of economic expansions, when there’s demand for plants and equipment and labor, money has to come from somewhere―especially if the monetary authorities are starting to err on the side of being restrictive rather than expansionary, as the Fed currently is. At that point, money comes out of the capital markets and goes into plants and equipment and labor.
Trump's proposals and his agenda are very bullish for the economy. By definition, therefore, it's somewhat bearish for equity prices after this sort of extended rally.