How The Fed-Driven Multiple-Expansion "Robs From The Future"

Tyler Durden's picture

2012 was unusual for many reasons. As Morgan Stanley's Adam Parker notes, the kind of stocks that worked in what was a big up tape were very atypical - higher-quality, larger-cap. While the Strategist graciously accepts that his year-end 'bearish' call for 2012's S&P 500 performance was a miss, it is his reasoning that is key. Having a framework is critical and while CNBC anchors merely look on and judge a book by its cover, Parker's critical insight that last year's performance was all multiple expansion and "The reason we got multiple expansion last year was the Fed is creating trillions of dollars on a computer" is perhaps the most critical take-away for anyone claiming victory. His succinct summary for 2013 (e.g. earnings consensus needs to come way down, and Fed unconventional policy-driven multiple-expansion has 'robbed from the future') in the following clip is also worthwhile to clarify exactly what is going on under the covers of our equity markets.

 

Here is the reality of which Parker speaks - the magical lift in multiples that Fed action inspired - even in the face of dramatically falling earnings...

 

Parker defends his bearish view starting at around 2:30 (and is key to grasp reality) but the entire brief clip is insightful.