I really feel like our eldest brothers are in charge of everything.. they have two main characteristics, they overreact and they achieve.. so the achievers that swing the markets overreact to nearly everything and we get.... drumroll... volatility enhancement!!
I dont disagree with you on the mechanics, I just think the market has overshot the present value of future cash flows. I think if one were honest about asset valuations on the balance sheet and the expectations of future revenues in a consumer de-levered economy, the current multiples for REITS, Banks (un aided by free money) and Consumer stocks are way to high. I think energy and commodity stocks are too low. Im sure you disagree...its what makes a market.
Bottom line, regardless of headline earnings, P/E's are roughly 22 which is very expensive still and the fundamentals are not getting better (employment, spending). The economy has an excess capacity problem that will be problematic for some time to come.
We are in the midst of the greatest bull market in the history of man. The next decade will make the 90's look like the 70's. Everybody hop in. The water is fine.
Markets tend to defy logic at the very top of a move. We are seeing the swing of sentiment from very bearish, to overly bullish. Wait until you see the anchors on financial news channels giddy with bullishness, like the economy is full of roses. It's coming within the next week. Then short the hell out of retailers, industrials, casinos, and aything else that's tied to the consumer.