Is It Different This Time?

Tyler Durden's picture


If history is a guide, the rest of the year is destined to be a winner. As Barclays points out, thew typical election-year cycle is a first half of range-bound trading followed by a second half of acceleration higher. 2012 has followed this pattern but on a much higher beta scale, with the current year's performance more than 50% above typical election-year full-year performance. Of course, we have never had a debt-ceiling and fiscal cliff debacle that needs to be resolved between the election and year-end. What's more interesting to us, given the surge in P/E multiple expansion driven by central-bank largesse, is that P/E multiples have contracted notably in the latter half of election years in the last 40 years.


The Dow's performance in election years since 1900 (and the 2012 performance so far...)


But it is different this year - P/Es have exploded relative to normal election years...


The last 40 years have seen multiple contraction in the second half of election years...

So when your long-only manager says - you have to buy because of the election year cycle, maybe ask him about the election year 'valuation' cycle

Sustainable? Ask Ben and Mario...


Source: Barclays and Bloomberg

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Tue, 10/02/2012 - 12:41 | 2848733 Ahmeexnal
Ahmeexnal's picture


Tue, 10/02/2012 - 12:50 | 2848773 LiesAreTheOnlyTruth
LiesAreTheOnlyTruth's picture

LOL ... "Forward!  Oh, THAT cliff ahead?  Uh ... it's just a shadow or something .... NOW ... shut up, FORWARD"

Tue, 10/02/2012 - 12:52 | 2848787 nonclaim
nonclaim's picture

Play the elections game:

Tue, 10/02/2012 - 12:53 | 2848795 Silver Bug
Silver Bug's picture

It's never different. Disaster is coming if central banks don't change their course.

Tue, 10/02/2012 - 13:02 | 2848823 JohnKozac
JohnKozac's picture

No problems at this end. Just wake me up when silver hits $200/ oz as John Williams predicts. I may want to buy a house (or two) for a few bars of the silver metal. Of ocurse, since you can still grab one right now for zero down I am not sure I even need an ounce of copper to grab a dozen or so, preferably in the same neighborhood.

Tue, 10/02/2012 - 12:41 | 2848737 Abraxas
Abraxas's picture

Who the hell knows if it's different this time or not.

Tue, 10/02/2012 - 12:45 | 2848752 malikai
malikai's picture

It is different every time - until it becomes just like the last time.

Tue, 10/02/2012 - 12:50 | 2848771 Abraxas
Abraxas's picture

Kind of "everything must change so everything can stay the same" type of thing?

Tue, 10/02/2012 - 13:03 | 2848834 malikai
malikai's picture

It's a different day. Different people are in charge. We have a slightly different setting.

But we're doing the same things and will end up in the same place.

Tue, 10/02/2012 - 13:36 | 2848970 hidingfromhelis
hidingfromhelis's picture

We had to destroy the <economy> in order to save it.  Wait, in this case, I think it might actually work that way.

Tue, 10/02/2012 - 12:54 | 2848797 monkeyboy
monkeyboy's picture

...or the time before that

Tue, 10/02/2012 - 13:49 | 2849023 RiverRoad
RiverRoad's picture

It sure as heck is different this time:  Never witnessed a bull market apparently oblivious to fundamentals, devoid of normal corrections and guaranteed by the Fed before.  What the hell is this monster?

Tue, 10/02/2012 - 12:46 | 2848755 postafoa02
postafoa02's picture

It's always different, but never this time around

Tue, 10/02/2012 - 12:47 | 2848758 LiesAreTheOnlyTruth
LiesAreTheOnlyTruth's picture

Can you say 'Priced In'?

If we can just believe, and hope, we can change it this time.  They just didn't know what they were doing before when this failed all other times in history.

History is nothing but information, we know better and make our own future ... now shut up and let's go forward!

Tue, 10/02/2012 - 12:48 | 2848766 Lost Wages
Lost Wages's picture

So you're saying it IS different?

Tue, 10/02/2012 - 12:51 | 2848779 Abraxas
Abraxas's picture

Is it? Maybe it's not. Hmmm, what are they saying?

Tue, 10/02/2012 - 12:51 | 2848782 kaa1016
kaa1016's picture

These election year prognostications are complete nonsense. All I can say about elections years in the new normal is how did 2008 work out? I guess it's human nature to always want to view things with rose colored glasses on.

Tue, 10/02/2012 - 12:52 | 2848786 adr
adr's picture

It has been circling around the black neighborhoods that if Obama wins, they will all get a GM car. Or at least each black household in the ghetto will.

It does make sense, there is no way in hell GM is going to sell over 700k cars by the end of the year. The plan could be to have the government sell it's remaining shares of GM, and then use the cash to buy GM vehicles for the Obamacar program.

WIN WIN!!!!!!

If it sounds crazy it must be true, because things that sound sane aren't even uttered by the government anymore.

Tue, 10/02/2012 - 12:57 | 2848811 fonzannoon
fonzannoon's picture

I hate to give cnbc even a little credit but Sam Zell and Mark Cuban (just now) were pretty good today.

Tue, 10/02/2012 - 12:58 | 2848816 polo007
polo007's picture

The current yield on three-month Treasury bills, often considered to be the “risk-free” rate, stands at just 0.10%. However, given the cycle of funds from the left pocket of the U.S. government—the Fed—to the right pocket—the Treasury selling T-bills—is the risk-free rate really risk-free? Nobody can know for sure what would happen to T-bill yields if the Fed’s buying binge ended, but one thing that’s certain is this: the risk-free rate would rise, as demand for our T-bills dropped. In short, risk is being distorted in today’s markets too.

So, what does the all mean to you as an investor? It means that at some point in time, when unemployment improves to a level that Ben Bernanke considers acceptable, QE3 will end, and public equities may be headed for a plunge.

Nobody knows when the music will stop, but the distortion of risk-reward in the public markets makes this an ideal time for investors to consider their portfolio allocation in private markets.

Tue, 10/02/2012 - 13:09 | 2848859 fonzannoon
fonzannoon's picture

"It means that at some point in time, when unemployment improves to a level that Ben Bernanke considers acceptable, QE3 will end"

I don't think that's how it ends.

Tue, 10/02/2012 - 13:10 | 2848868 pavman
pavman's picture

Where was this *before* June?!

Tue, 10/02/2012 - 13:14 | 2848882 insanelysane
insanelysane's picture

Depending on who gets elected, meaning Senate and House, and what they start saying they are going to do tax wise, there could be big swings in the market.  If the Repubs win and say they are going to neuter the FED, that is a market mover.  If the Dems win and are going to raise taxes on "rich" people (200k and up), then that will move the market.


I don't see a rally because each government "fix" to the problem causes pain and very few will provide eventual relief.

Tue, 10/02/2012 - 13:25 | 2848922 hannah
hannah's picture

it is different this time....we have never in history printed and stuffed hundreds of trillions of dollars into a failed economy.

Tue, 10/02/2012 - 13:48 | 2849016 HaroldWang
HaroldWang's picture

Yes, and also remember that all the knuckleheads on CNBC kept saying back in August that September is always a bad month and look what happened. Now they tell us that we're entering a typically good time for stocks, so we should expect the opposite, of course.

Tue, 10/02/2012 - 14:32 | 2849153 Urban Redneck
Urban Redneck's picture

Hope someone has come up with a fancy new algo to facilitate the trillions in capital gains capture and position rolls, otherwise the sudden appearance of all that (currently non-existent) volume might spook the HFT bots into doing something crazy...

Tue, 10/02/2012 - 21:52 | 2850538 DowTheorist
DowTheorist's picture

Well, after all the stock market is in  primary bull market under Dow theory. So, while nothing is carved in stone, the odds clearly favor the continuation of the bullish trend for several months. Furthermore, it is a young bull market (which started on June 4 and was signaled by Dow theory on June 29).

Here are the 5 reasons why the market is bullish long term (i.e. 1-2 years):


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