Peak P/E?

Tyler Durden's picture

There is little doubt that asset prices have responded to Central Bank promises and actions. Even as bottom-up fundamentals are fading, top-down index 'nominal prices' rise on the back of magical multiple expansion - which is defended from on high by sell-side strategists the world over on the back of 'recovery' is just around the corner. The trouble is there's a limit and it seems - from QE2 and LTRO - that we are rapidly approaching that limit; and with earnings outlooks being revised lower, perhaps we are at peak P/E for this cycle of QE?

Each line is the normalized gain in P/E from the onset of expectations for Central Bank largesse:

(QE2 - green; LTRO - red; QEtc. - Orange)


Adapted from Bloomberg Chart of the Day

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slaughterer's picture

Peak PE?  Wait until later in the month.   

alstry's picture

When PE is the product of printing the PEOPLES' money...WTF is E and who should it belong to?

redpill's picture

So it'll peak exactly on election day.  The Bernank is better than I thought, he sure knows his stock ramping to a tee.

Ruffcut's picture

peak me once, shame on you. peak me twice, don't quit the peaks.

CPL's picture

expialidocious without the supercalifragilistic

Nihilarian's picture

As long as hopium keeps fwd P/E's low nothing bad will happen.

slaughterer's picture

"In AAPL ramping We Trust.  God Bless the iPhone!"

The Axe's picture

Bob Pissonme   told me thats not true??     lol

Dr. Engali's picture

While every fiber in my being says we should have a contracting multiple, the centrally planned market( policy tool) is saying otherwise. Maybe after the election we will see some sanity in the "market".

petolo's picture

When the insiders start jumping off the rooftops P/E's should go down along with them. Road-kill for the ravens.

alstry's picture

Udder World and Warren Buffett

As far as I can tell, Warren Buffett and Udder World (posting as Alstry) are the only two people in America to PUBLICLY admit and accept that absent the GOVERNMENT, we the people, bailout in 2008....   EVERYBODY in America would have gone bankrupt including Warren Buffett.

Ask yourself this question: What kind of society FORCES the poor to bailout the rich, with the poor AND middle classes' money, and then forces the poor to remain poor without much opportunity in a failing system?

slaughterer's picture

There are alot more poor and middle class than rich, so accumulated, the money of the poor and middle class can support the rich quite handsomely, at least if the rich have cooperative stewards in the government, which in this case they certainly do.

Mercury's picture

Well, when nominal E catches up with nominal P that might amount to little more than just plain old inflation.

In fact the Fed’s whole strategy is basically an attempt to jump start the economy before that happens or happens beyond a certain point.

Quinvarius's picture

One need only refer to the chart of INTC revenue growth post QE1 that was posted earlier today.  The upcycle was a lot bigger.

Conman's picture

honey badger market doesnt understand p/e, or decling revenuws, or shrinking margins, or anything that would matter to analyzing risks of part ownership of a company.

fonzannoon's picture

OT when did Santelli sell out? he lost his spine bigtime.

ekm's picture

When are people going to understand that the Infinite (money) can SWALLOW the Finite (stocks), thus increasing the price at not just no profit, but at a loss.


Stock XYZ price is $100 with divident $1 which is 1%. If the stock price goes $1000, the same dividend is 0.1%. Deduct inflation and you get a loss.

And we're not talking at all about stocks without dividend.

Why is this so difficult to understand?


slaughterer's picture

The whole concept of P/E should be probably thrown in the dust-bin along with all those Graham books most P/E analyses are founded on.  If you look at stocks like LNKD you will realize that there are other ways to evaluate the value of a stock, and P/E just narrows your mind.  

adr's picture

There is actual value in LNKD?

Enough to justify more than a P/E of 1019?

LinkedIn seems to be the new Something everyone adds a profile to, but never actually uses.

When you hear of people getting jobs because they have a few thousand LinkedIn connections, instead of actual qualifications, you know you have hit the absurd .com moment.

El Viejo's picture

Hopium for a Jobium.

gjp's picture

Why would there be any limits in a world of limitless printing?

Ham-bone's picture

Just for giggles - any chance to add in the peak of P/E from the Nasdaq bubble for perspective???


Honey badger doesn't give a shit about price earnings. Honey badger just wants to tear the head off the market, and shit down the neck hole.

slaughterer's picture

Too many hot Bernanke Bucks sloshing around the algos for P/E to matter.  

fonzannoon's picture

Hey Tyler some 20yr old Long Island kid just got arrested for trying to pull an actual Tyler Durden

adr's picture

I like that Nanex has pretty much found out that HFTs have busted the natural gas market. It is now 100% manipulated and regular traders are fleeing because they can only be fleeced by algos.

Only Skynet knows the real market.

Bear's picture

I am the Bear, but:

"perhaps we are at peak P/E for this cycle of QE?"

It won't matter with $85 billion a month  being given to the banks and finding its way into equities, P/E's have to erode  with prices rising inordinately and earnings remaining flat or declining. The problem is that TPTB are pumping the news cycle and momentum is being forced to reign until after Nov. 6. The real problem is, when in one quarter, prices are too high and earnings are too low and the election is over and Europe is exposed

dscott8186's picture

That would be called an opportunity to short...after November 6th.  Yum, yum, I smell the chum.

Yen Cross's picture

The 10year went up 7.4 basis points today. The fucking bond guys got hammered. Things are getting pretty extended again. I wouldn't be surprised to see some selling into Tomorrow. Even the fucktards at CNBS have got to be reluctant to add to this ramp up! Shit aud rallied 100+pips against the dollar and yen.

 The $ is just getting hammered!

Bear's picture

Never underestimate the ftards' ability to ramp ... if you think they are over-extended sell the Aussie 

Orly's picture

Tonight at ten o'clock eastern, when the CNY GDP comes in as expected or worse- 7.4%, or stall speed for the Chinese economy.  I expect the AUDUSD and the EURUSD to begin a long, slow slide.

But then again, there's always jawboning!  That might work.


fonzannoon's picture

Yes the $ is getting hammered. Rates are rising (eh..1.74....) and the euro is flying....and gold is flat?

Ham-bone's picture

Add in that T's yields are rising, now 1.83% (and should hit 2.10% 10yr by election)...and the Fed has promised to keep rates low through 2015. 

Only two ways to get rates back down:

1- ramp up MBS and T buying from $85B to potentially significantly more to hold equities up, Bonds yields down


2- do what they've done every time before...after this big pump, after the election, let Europe happen, let the stock market correct by 20% and voila, T's yields fall back in Fed's target and P/E's reset.  Then wash/rinse/repeat.  bonus - vix collapsing, shorts collapsing, longs levering long, housing bulls causes maximum pain.

Hmmmmmmm...wonder what will happen.

banksterhater's picture

Crestmont p/e is near 25,(hist ave 14.7) anyone chasing this is a fool.

azzhatter's picture

fucking market is a joke. Two bellweathers, IBM and Intel suck because they see global slowdown breaking bad. What happens? Housing stocks rally!  what a fucking joke

wagthetails's picture

it will keep going...Europe still has another year or two of faking it; if Obama wins his acceptance speech will tell the markets everything they want to hear, if Romney wins, they will increse based on GOP hope and change; there will be a fiscal cliff "argeement" which will have as much of a backbone as the EU jawboning, but the markets will see that as a step in the right direction.   but the big delay will be caused by worldwide goverenment statics rigging.  this was probably always the case, but with the past few US metrics obviously rigged, and with barely a complaint from the masses, this will open the flood gates of the gov to rig all numbers, which is the next form of QE: 100% governmnet manipulation of statistics. 

I think both clips from Monty Python and Eric the Viking are most appropriate.  yes as the gov sees horrible news, they will only report them as mere flesh wounds.  and obviously, the US is Hy Brazil!

SmoothCoolSmoke's picture

SP up .45 pts per hour for the last 90 hours.   MOFOS!

falak pema's picture

a look to the future :

Where is the world economy headed? - Sri Lanka Guardian from a thirdworld economist

World economy: where are we now? « Michael Roberts Blog from a marxist economist! 

Well he can't be as bad as the OECD/IMF crowd! 

DowTheorist's picture

The market seems to be discounting serious inflation ahead, which may distort "normal" PE readings. In case of doubt, I tend to favor sheer market action. As per Dow Theory, the stock market is in a primary bull market. Such primary bull markets have long legs. They aren't just a "tradable" rally.  The average gain of a primary bull market averages ca. 40%.  Furthermore, 70% of the primary bull market signals end up in profits.

Here are 5 reasons for the bullish long term case (1 year at least):


Even if the current bull signal was a "failed" bull signal resulting in losses (30% probability), this wouldn't be the end of the world, since we would see a bear market signal if markets are to go substantially low. Since the Dow Theory tends to be more responsive than moving averages, sell signals are flashed at ca. 10% from the top. Not so bad and in the meantime it allows the investor to participate in the trend until exhausted.

Thus, the Dow Theory complies with the basic rule of investment: “Cut your losses short, let your profits run”. This is accomplished thanks to the Dow Theory trailing stops. More on them here:

Under Dow Theory, we always know how much we stand to lose whereas the profits are open ended.



Go Tribe's picture

Mind getting the Manchelle Vote Early ad off your site? It's discomforting.

Orly's picture

Ads are targeted to your computer.  No one sees the same ads.

Thought you'd like to know.