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Is The Market Cheap?

Tyler Durden's picture


Overly optimistic expectations are commonplace in non-recessionary periods, and confirming what we discussed here, estimates have continued to decline over the past few quarters while markets have pushed higher. In fact, as JPMorgan notes, and despite the protestations of the commission-takers, S&P 500 EPS are now forecast to be less than they were at the previous peak in 2007/2008. Of course, the multiple expansion argument comes to save them but we note that given where we are in the profit cycle with margins at their current levels (as discussed here) the majority of earnings growth moving forward must come from revenues rather than margin expansion. Revenues for the S&P 500 have historically grown in-line with nominal global GDP, so let's hope that FDX, CAT, and ORCL are all one-offs. So given indices are at all-time highs but EPS expectations are well below the previous peak - we wonder just how this market is deemed 'cheap'?



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Thu, 03/21/2013 - 10:57 | Link to Comment slaughterer
slaughterer's picture

The fuckin' pennant on the spot silver chart is keepin' me in suspense....  Turdville is down, so no way to tell which way the master PM chartologist sees this breaking.  

Thu, 03/21/2013 - 11:01 | Link to Comment ihedgemyhedges
ihedgemyhedges's picture

Market cheap or not doesn't matter.  Flows in from POMO and multiple expansion is what The Bernank is shooting for.....

Thu, 03/21/2013 - 11:04 | Link to Comment Ham-bone
Ham-bone's picture

26 days of trading in which silver has closed within an $.80 range...a close above $29.40 would be a break out and then things could get interesting.

Thu, 03/21/2013 - 13:15 | Link to Comment Go Tribe
Go Tribe's picture

I'll believe it when it closes above 29 for a week. It's just been a tease lately.

Thu, 03/21/2013 - 10:57 | Link to Comment TeamDepends
TeamDepends's picture

Wake us when it's shootin' time.

Thu, 03/21/2013 - 11:00 | Link to Comment PAWNMAN
PAWNMAN's picture

It doesn't have to make fundament sense anymore. It's all the Fed all the time. No invisible hand = No rally.

Thu, 03/21/2013 - 11:18 | Link to Comment otto skorzeny
otto skorzeny's picture

invisible hand-is that like fisting?

Thu, 03/21/2013 - 12:33 | Link to Comment Clowns on Acid
Clowns on Acid's picture

an invisible fisting? One cannot really see it...but one definitely feels it....

Thu, 03/21/2013 - 11:01 | Link to Comment Ham-bone
Ham-bone's picture

Futures so bright, I gotta wear shades.

Thu, 03/21/2013 - 11:01 | Link to Comment slaughterer
slaughterer's picture

Love the way the Tyler's whip out the fundamental and macro arguments in a world they cynically know is thoroughly controlled by GS and Fed microchips and dweeby Rutgers/NYU interns.  

Thu, 03/21/2013 - 11:19 | Link to Comment Cursive
Cursive's picture


True that.  There are those of us, you included, who do not deny the existence of the immutable laws of physics.  In much the same way that one cannot defy gravity, one should not defy human nature and the concomminant misery wraught by our hubris.  ZH is the looking glass of the financial world, reminding us of that we are not as pretty as our glorious leaders would have us think.

Thu, 03/21/2013 - 11:02 | Link to Comment francis_sawyer
francis_sawyer's picture

Not as cheap as it will be when joobux go to zero...

Thu, 03/21/2013 - 11:03 | Link to Comment Cdad
Cdad's picture

How to deem it cheap...good question.  However one does the fractional P/E expansion also must include $85 billion per month/$1 trillion per year's worth of Bernanke rollin' those bones in the final calculation.  And one must also be able to conclude that the Fed will continue to go ALL THE WAY past ALL THE WAY...before 2013 ends.

So...I guess I am saying that, since I do not have a PHD in mathmatics...I'm not sure....but it doesn't seem cheap. 

Thu, 03/21/2013 - 11:06 | Link to Comment Schmuck Raker
Schmuck Raker's picture

Hell yeah it's cheap, just depends on your definition of cheap is all:

cheap  (cheeeeep)
adj. cheap·er, cheap·est

3. Achieved with little effort
5. Of poor quality; inferior
6. Worthy of no respect; vulgar or contemptible

Thu, 03/21/2013 - 11:10 | Link to Comment Cursive
Cursive's picture

Tyler, any bulltard will gladly tell us the yield on the 20-year means that stocks are undervalued.

Thu, 03/21/2013 - 11:53 | Link to Comment Lewshine
Lewshine's picture

We watch a market down 100 pts on the Dow, with nothing but an international bank contagion looming into the weekend - And the Dow improves 80 points in less than an hour and a half - And we question whether stocks are overvalued??


I'm wondering how a question like this can be asked, or more than that - Who could possibly give a shit?? Price...Is an arraignment. It is used to put out fires...Nothing more.

Thu, 03/21/2013 - 11:10 | Link to Comment Dr. Engali
Dr. Engali's picture

Cheap is a relative term in a world with infinite fiat.

Thu, 03/21/2013 - 11:12 | Link to Comment earleflorida
earleflorida's picture

Breathtaking 'sine qua`non' anaysis Tyler... absolutely suigeneris, and soooo-- TYLER`esque!!! 

Thu, 03/21/2013 - 11:25 | Link to Comment Ham-bone
Ham-bone's picture

Tomorrow is such an amazing place where things purchased today are more easily payed for, where assets employed today will generate stronger cash flow, where people will consume more regardless of wage stagnation.  And like any faith based religion, no one can say it won't happen with certainty...only it seems dubious or lacking historical backing.  And so, prognosticating bout the future is now the greatest paliative to todays problems, regardless how ludicrous to the "non-believer".

 Realists are now castigated as the new doomers...the heretics of modern day eco-ligion.

Thu, 03/21/2013 - 11:20 | Link to Comment q99x2
q99x2's picture

I sense the approach of an asteroid.

Thu, 03/21/2013 - 11:23 | Link to Comment Shizzmoney
Shizzmoney's picture

If you are a banker jew....the market is cheap.

Thu, 03/21/2013 - 11:32 | Link to Comment ekm
ekm's picture




Ok, let me use a metaphor.

Imagine there is a village with 1000 houses. Average house price is $1000/house.


Then a powerful gang comes in and invades the village. The gang produces money out of nothing and they buy all 1000 houses at $2000/house. Hence, the market no longer exist.

Gangsters are selling houses to each other only at $5k, or $1million. It makes no difference, because they can create any amount of money.


Question: What is the price of houses.

Answer: Since at $1000 was the supply/demand price, that is the price if the market exists.

If the all houses are owned by a group of gangs then the price is whatever the gang decides to be since they're not buying or selling any. It can be $5000 or $1 million, it makes no difference.


That is the case with the stock market.

At DOW 11k, Fed + Primary dealers purchased everything with money out of nothing are simply putting a tag on the DOW, 12k, 13k, 15k, 20k, 30k by selling the same stocks to each other over and over. It makes absolutely no difference.


Thu, 03/21/2013 - 12:03 | Link to Comment Lewshine
Lewshine's picture

+1 @ EKM


Thu, 03/21/2013 - 12:44 | Link to Comment ekm
ekm's picture

Thx a lot.

I'll keep reposting it until everybody reads it.

Thu, 03/21/2013 - 11:28 | Link to Comment LongBallsShortBrains
LongBallsShortBrains's picture

It is the greater fool theory. Tyler, you need to pay attention. The market is like real estate in Phoenix and Florida. It only goes one way. The only question is "when do we run out of fools?"

As long as Benny and the inkjets are buying, there is a greater fool..... And that fool doesn't care about prices of what the fool buys.... Quit wondering and buy the fixed dip.

Thu, 03/21/2013 - 11:48 | Link to Comment yogibear
yogibear's picture

Use the Zimbabwe filter. The Fed keeps printing and devaluing.

You going to hold on to a currency the central bank is determined to trash?

Since Bernanke and the fed want to make the 1% even richer and impoverish the other 99% where would you go?

Zimbabwe's stock market skyrocketed. It's Bernanke and the Fed's plan.



Thu, 03/21/2013 - 12:17 | Link to Comment Archetype
Archetype's picture

The market is (a) sheep, if that was what you were asking? And its time for slaughter.

Thu, 03/21/2013 - 12:43 | Link to Comment Clowns on Acid
Clowns on Acid's picture

Bernanke says "market is not over valued on an inflation adjusted basis". The market is cheap...'cause thats they way I feel".



Thu, 03/21/2013 - 12:52 | Link to Comment wonderatitall
wonderatitall's picture

beecuz the berbank and our daddy obama the vacationer said so buy buy

Thu, 03/21/2013 - 13:57 | Link to Comment spooz
spooz's picture

Bah. Who needs fundamentals when you got the Bernank on your side?

Thu, 03/21/2013 - 14:44 | Link to Comment 1000924014093
1000924014093's picture


Thu, 03/21/2013 - 18:27 | Link to Comment John Law Lives
John Law Lives's picture

"So given indices are at all-time highs but EPS expectations are well below the previous peak - we wonder just how this market is deemed 'cheap'?"

The market is deemed "cheap" by the whoremongers who want to suck retail lemmings into the market to buy their shares.



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