This page has been archived and commenting is disabled.
"The Last Time The 10 Year Was Here, The S&P Was At 805"
Rosenberg is going bald from all the headscratching that is going on with equity valuations. And yes, we have dissected the 10 Year to Stock correlation before, and have concluded that the fair value of the S&P with the 10 Year here is in the mid-700 range:
The consensus has certainly taken down its numbers on profits and on the economy, but by not nearly enough. The consensus of equity analysts still sees 13% growth in operating S&P 500 EPS for the coming four quarters, even though the math does not work at all. For one, margins have already very rapidly expanded to cycle highs. This means that there is very low potential for profits to grow much in excess of nominal GDP growth, which, at best, will be low single digits. That would put EPS for the next year closer to $80 than the $88 consensus forecast and place the forward P/E closer to 13x than 12x (it is 12x on consensus view). Of course, if the economy does double-dip, then we are talking about EPS going down closer to $60 if the historical pattern during downturns reasserts itself, which then means the forward P/E multiple is really north of 17x.
This is why valuation is so tough — beauty is in the eyes of the beholder. Historically, the forward P/E with consensus estimates is 15.6x, and yet if you look at what we actually end up with, it is 19.2x. So the consensus is always publishing an earnings forecast that makes the market look cheap! And, this “bias” is close to 20%, on average. We still prefer the Shiller P/E, which uses the ‘bird-in-the-hand’ earnings, takes them in real terms, and cyclically-adjusts the earnings data, and the multiple here is 20.6x, which is 26% above the historical norm. So sorry, the only way you can get this market to show that it is “attractively” priced is to rely on consensus earnings projections, which by the way, are coming down but still too high.
Ditto for consensus real GDP growth, which sees 2½% growth for Q3 and Q4. It is not going to be too difficult to see flat to negative prints for both quarters barring some massive positive exogenous shock.
As for 2011, the consensus is at 2.8% for real GDP growth. Are you kidding me? This is a reason to start going the other way on a contrarian bet? You must be joking. When the sign on that 2.8% changes from a plus to a minus, dial us up.
So, with earnings estimates still +13% for the coming year and consensus GDP forecasts lowered, but still well above 2%, then it is hard to build the case that we have seen anything near full capitulation. Not only that, but equity fund managers are only sitting at 3.8% cash ratios — in the 2001 and 2008 downturns, these ratios got as high as 6%. Now that is capitulation and we are not there yet.
Plus, keep in mind that we are in a secular bear market, which is constantly peppered with flashy rallies and significant setbacks. Japan, for example, has just posted its fourteenth(!) 20%-plus decline in the Nikkei index since the peak was turned in 21 years (and 77%) ago!
And for those position short, and betting on the Hindenburg to make their year, that possibility is getting ever more distinct:
We understand that Mr. Market has drawn 1,040 as a line in the sand but if that support level breaks, as the comparable level did in Japan in the past week, then it seems prudent to take out some insurance against a fall-time fall-off of significant proportions. Those with cash on hand as a tactical asset would seem to be in pretty good shape in terms of taking advantage of what seems to be a very strong chance of sustained selling pressure, especially upon a break of key technical levels. The Fed may well come in with another round of QE (can it really do this with a published 3.5-4.2% GDP growth forecast for 2011?), and the White House may yet see the light and delay the tax hikes (what happened to the campaign pledge of income redistribution?), but these policy shifts would only take place if recessionary pressures were to intensify, which in turn would dramatically cut earnings expectations. The actions themselves would only end up smacking of Japanese-style desperation — hence any policy-induced rallies would probably only represent an opportunity to reduce exposures at better price points. This bear market rally ended in April (confirmed by three failed tests of the 200-day m.a. in the S&P 500 since the nearby peak four-months ago), and amazingly, those who see it that way are still in a minority — institutional portfolio manager cash levels are still very low at 3.8% and susceptible to stepped-up outflows.
In other news, we are still loving us some Nikkei-SPX convergence.
»
- 12042 reads
- Printer-friendly version
- Send to friend
- advertisements -
Spooks series 7 episode 5
"Ros and Lucas go undercover to investigate the role of a prominent businessman in the destablisation of the British banking system."
That's MI-5 in the U. S.. (We have a goofy racial eipthet thingie with "spooks".)
10:00a
BREAKING
July new home sales plunge to record low pace
"Unexpectedly"?? Obviously, they are not even self aware of how stupid they appear to the rest of us, and overuse of that particular word does not instill faith in their intelligence.
WTF, 1min ticks going up after New Home sales were also a total miss.
Gross manipulation. Gold is holding steady, as it was yesterday. It is now allowed to move up.
Take delivery - now. I just ordered another 100gr bar.
+1 PMs are about the only solid thing I'm seeing in the market.
Well, that and M.Faber's advice to buy a small farm and get ready to hunker down for a while...
I am seeing strange things on Scottrade. Bid/Ask is often 10-15 cents lower than the prices going through. Does anyone else see this?
I hope Doug Kass is enjoying his recently acquired (and doubled down on) BAC... Him and the much bigger fish reported on ZH.
thanks for the junk. Is that you Cheeky?
What if the banks are taking all that free money and are now shorting the market.
voila
The FED keeps on buying, it should've been there by now... Watch out for the inverted head and shoulders on all american indices instead. Failure to close under 1040 today and the PPT will have one helluva shortsqueeze handed to them.
I am thinking the same thing.
Only thing is a seller with some size in one of the 99 stocks that make up 50% of volume could send the HFTs scurring for the exits. This would make things most interesting.
IS THERE A POMO TODAY BEFORE 5yr AUCTION? anyone?
thought it was tomorrow
so what.
So beware of the upside.
Ha,ha, ha. Rosenberg should take some lessons in stock evaluation. Meanwhile, I will support the US economy buying some more of your IPhones and Ipads and Apple PC´s for my staff.
And the last time Crude Oil was at $70, Gold was at $800. These cross market correlations are cocktail party chat worthy at best, not tradable though.
And the last time DOW was at 14,000, oil was about $30. So whats yer fukin point?
That is EXACTLY my point.
Wow, and triple-junked to boot!
I guess some people really feel the need to defend non-existent correlations.
There is no headscratching needed to figure out why the markets are up. It is a simple answer of the Fed buying up all the indexed futures and ETF's. There are no other buyers out there with net flows being negative from mutual funds. The Fed currently owns more of the market than anyone else, and I would be willing to bet money on that. All we need to confirm if I am right or wrong is an audit of their trading activities.
Anyone looking for rational price correlation in this manipulated FED owned scam market is delusional.
Would be nice to get the 200,000 people that visit this site daily to fill out the petition http://www.auditthefed.com/
No no TD, you're looking at this all wrong. Dicky Bernstein told me so on CNBS this morning. He said "at this level of interest rates, stocks are fairly valued". What a tool.
Given that all valuations are subjective interpretation, his statement is wholly logical.
Not to mention he used the further subjective wishy-washy four-letter F-word.
Anyone know the last time a recession in the US was not accompanied by an inverted yield curb?
Obviously know that QE 1.0., 1.5 and ZIRP have skewed the curve.
FWIW, the market is very oversold. Art Cashin predicted a rebound in today's comments, published before the Durable Goods data was released:
"Cocktail Napkin Charting – Yesterday provided the third “confirmed” Hindenburg Omen in two weeks. The Transports have taken us very close to a possible Dow Theory sell signal. On the other hand, the market is very oversold.
For today, support in the S&P looks like 1039/1043 and then 1028/1031. Resistance looks like 1059/1064 with a backup at 1070/1074.
Napkins suggest that if we open down 50 points or more, we could have a sharp rebound rally by the close. Cross your fingers."
Art has a scary seat-of-the-pants feel for markets. Years on the floor have given him that. When Art is pessimistic it's time to sell, and visa-versa.
Wow. Looks like Rosie is trying to be optimistic. A 6% cash ratio marker would simply mirror our last stopping off point which wasn't capitulation either. If we haven't seen capitulation and the economy (I mean the banks, but why concern ourselves with conflation since banks and markets are no longer in the business of capital alchemy) is running out of heroin, strike that stimulus medicine then a 6% ratio may prove over kind. Most especially if one believes that this market is in secular bear territory and/or that this has been one large economic downturn made up of many running stories. For those who hold this view then one must look at technicals from '06-'08 to confirm the start of the ongoing downturn. I am left to wonder how many Dutch boys work at the fed and how fat their fingers are, taped up and all?
Only 300 more basis points until MS 2010 US10yn is hit
LaRouche comments on Fed dissention. Very Interesting. While July was the start, it's only getting realized now that fixing our system or deflationary/hyperinflation lies ahead. We all know Bernanke chooses #2, as #1 would end the farce. Obama's clueless and follows what used to be considered republican wall street ideologies (like Clinton, but worse).
http://www.larouchepac.com/node/15589
Don't forget Glass/Stegall and NAWAPA, and here's a couple more good reads from today.
http://www.larouchepac.com/node/15586
http://www.larouchepac.com/node/15584
The question is, on the way to 700ish, how much destruction takes place that takes us down, much, much further. Eve of destruction.
Just remember boys and girls:
Eventually everything reverts to the mean.
Sucks to be long equities when it happens.
Devaluation bitchez!!!
Back on Jan 20, 2009 when the 10 year was last at this level & the S&P was at 805, also coincided with gold closing in NY at $854.35, and wti crude at $38.74.
Source: http://news.goldseek.com/GoldSeeker/1232514000.php
Yesterday, gold closed NY at $1239.30 and wti crude at $72.52. A rise of approx. 45% & 87% for gold & crude against the USD, respectively, during that timeframe:
Source: http://news.goldseek.com/GoldSeeker/1282795200.php
If the USD has lost just under half it's purchasing power since Jan 20 2009 against crude, and just under a quarter of its purchasing power against gold, why would it be expected that the S&P would be back at 805 USD's now, just because the 10 year is back to those same levels as Jan 20 2009? Is the value of the USD worth the same now as it was in Jan 20 2009?
Gold & crude answers that question with an emphatic NO. It's worth less. Much less. According to gold & crude.
Hence why pricing the S&P with an elastic measuring stick such as the USD across any reasonable length of time is a futile exercise, if one wants to get real about accurately measuring comparative values across time.
The markets are broken. Some say irreparably.
Article is very interesting,thanks for your sharing.I will visit this site.welcome to my site!... cheap site hosting
windows web hosting
windows vps hosting
windows vps