This page has been archived and commenting is disabled.
Is The Multiple-Expansion "Dream" Over?
The current market environment of increasing event risk (suppressed by the all too visible un-tapering hand of the Fed) and slumping earnings expectations has had little to no effect on either the US equity market nominal level or the commission-taking asset-gatherers pitching the "long-term" buy that the market always is. Through the magic of multiple expansion, stocks remain at all-time highs and are pitched as "cheap" because multiples can still get bigger - remember March 2000 25.6x P/E... There is only one thing wrong with that dream. No matter how hard the Fed tries (mistakenly as we noted here) to pump the "economy" full of money to make consumers feel good, Consumer Sentiment has hit a wall...
The ubiquitous "but P/Es can expand much much more before they have hit a 'top" chart...
But aside from the dot-com bubble, current levels of valuation are at or near peak of the last 30 years...
On a historical earnings basis...
and a forward-looking basis...
But, it's all about confidence... investors will not be willing to pay increasing multiples unless they are confident that the future streams of earnings are sustainable and forecastable... And simply put, the current levels of Consumer Sentiment need to almost double for the US equity market tp approach historical multiple valuation levels...
And remember - as we noted here - its the 80% that consume and the 80% are not benefitting from the wealth effect (much to the chagrin of the Fed).
So next time your "manager" or investment advisor proclaims stocks are cheap compared to historical peak levels, perhaps its worth asking him with "risk" priced into the market at almost all-time lows,
Where is the next doubling of Sentiment coming from? Especially in light of the collapse in economic confidence that Washington is inspiring...
And the cyclical budget-spend now over (and absolutely not expected to pick up anytme soon given the "negotiations")...
As we noted before, Be Careful Of The Big Con...Be careful about being too quick to believe that the sluggish economic dynamic that has “dogged us” for the last 6 years is yet fully behind us. If we are correct then the Fed is likely going to have to agonize in the 4th quarter whether to stick with its implicit guidance and taper and even if they go ahead with that decision they may find themselves having to reverse it later.
For the 3rd time in this 17 year period we MAY be looking at a 4 year 4 month rise in consumer confidence before a turn lower again.
»
- 19877 reads
- Printer-friendly version
- Send to friend
- advertisements -
But here is the question ZH, when does the FED stop feeding the rich and how long can it go on? I know we have nowhere to look but at history. However, never in recent history has it happened like it is happening now except maybe in Weimar Germany. (Forget Zimbabwe and the south american countries since their wealth was never like the wealth of the US) We are in a whole new reality here. So the question becomes, how to predict when it will crash so that you can ride the wave? Who needs the consumer when the fed can print more than they can ever spend. I know this article is implying that it is about to end soon. But that has been the case for the last 2 years or so and the FED simply prints more. Some people are saying the market could double again before the crash and it could take a few more years. Why not make some money, convert it into hard assets and try to jump out of the way of the train.
according to Mrs. Bill
the answer is an unequivocal "yes"
Most of the expansion in the US at this time is happening in the following areas:
1) Waists
2) Bottoms
3) Expenses
As for the rest of the above NUMBers.....it's pretty clear that business is being killed. A socialist state cannot have thriving privately owned businesses. They have been choked by regulation on the inside and totally un-fair chinese competition on the out. The outsourcing of the software/it business to India is another shining example. Call center action took away another slice of medium paying jobs for the mid/lower income class.
And from a social engineering sgtandpoint, welfare+idolization of the dregs of society through shows like honey boo boo took care of the rest.
sad...the USSA is a failing state because that was intended. So clear. Santayana's idiom is being played in real time in front of our eyes, world over, but as the croaker zimmerman famously said, the first one now will later be last, cause the times they are a chaaaaanging......
ori
http://aadivaahan.wordpress.com/2012/05/31/towers-of-baabel-and-levers-of-control/
Families hoard cash 5 yrs after crisishttp://news.yahoo.com/ap-impact-families-hoard-cash-5-yrs-crisis-0420429...
People have been trying to predict "The End of Time", since the beginning of time.
Yes, but there has been some regularity to it if you are old enough, and did not live under ground until your thirty's.
I know this article is implying that it is about to end soon. But that has been the case for the last 2 years or so and the FED simply prints more. Some people are saying the market could double again before the crash
It reminds me of US Surgical ,, it was already dead for MONTHS because of JNJ's decision to bust up the party with their realistically priced staplers and it still went from $45 to $120 ,, a huge blowoff top ... we're starting to see the STATES (South Carolina) get involved in curbing the Wall Street mortgage abuses/fraudclosures by quoting 150 year old never challenged USSC decisions (Carpenter v. Longen) regarding ACTUALLY HAVING TO OWN SOMETHING to have a loss in it.. shazam!
Thanks for providing me with a name for this tree frog clinging to my bedroom window. He eats a lot of mosquitos, but you would not believe the huge size of his turds. There has got to be a banker analogy in there somewhere.
Only if you recognize bankers for the face-clinging alien turds that they are.
No one can predict the end with any accuracy. The Fed and .gov have so much power that they hold the shack together for a very long time, and they already have.
One day, maybe soon, there will be some bit of news that collapses all confidence in the dollar or economy (Indisputable evedence of the emptyness of Fort Knox or some such) which will cause the rest of the world to dump their USD at any price just to get out.
The how can be fairly accurately predicted IMO, but the when will be like turning off a light switch and by the time you hear about it, it's too late.
Go ahead and play the game for now if you'd like, but as always with investing, only use money you're willing to lose.
"So the question becomes, how to predict when it will crash so that you can ride the wave?"
As David Stockman has said, that is unknowable. And as he has also said, that's exactly the problem for anyone who doesn't want to risk their money in the stock market. The choice has become (for those who aren't day traders) - lose money over time to inflation or risk eventually losing a large percentage all at once in risky investments and Stockman rightly considers stocks to be very risky at this time. The safe investments in my opinion are gold and land, although both are already much inflated due to economic policy thus far.
For many, the dream ended a long long time ago.
http://jimrickards.blogspot.ca/
Nobody knows. It's already gone on years longer than almost anyone could have guessed would be possible, even The Bernank. When this started he expected (and wanted!) an inflationary surge that would monetize the real estate debts, if not all debts. Never happened. I believe even The Bernank changed his internal theories (models) somewhat circa 2011 in response to (non-)events. It may be that he can continue to mint greenbacks at a trillion a year or so, for some time.
OTOH I don't think he wants the Dow to go much higher than it is now, not in REAL terms. Should inflation start up, he would want and expect the Dow to ride the wave higher and preserve most value, and I think that may well be correct. OTOH we're all riding the tiger, but maybe if we feed the tiger enough fed-minted meat, he'll die of a heart attack and we can dismount safely. It's a theory, and it's all we've got.
the black swan event, the Archduke Ferdinand moment, beginning ww3 will be.... 1/ Not a black American female who tries to ram the Capital. 3/ Not a black American male who self immolates 3/ It will be a white American female who will throw her shoe at Emporer Potus.
Would that be from a female journalist? Perhaps the one that dared to ask Harry Reid about the NIH funding and the cancer treatment (study group) of kids.
Hopefully she's a transgendered lesbian wearing stilletos.
So let me see if I "unnerstan" , you want a chick who's has an addadicktome procedure and who wants to supposedly be the man that's been trapped inside her , just dying to get out ... but you want her/him to be wearing female footwear , stiletto heels ...
That's F'd up. Here's some pics on flickr http://www.flickr.com/photos/tags/katoey/
The fact that you knew where to find those pics speaks volumes about you.
Addicted to tranny porn much?
Possibly your personal collection?
Or, do you work at the SEC?
Just searched for Katooey images and found that library , my favorite site is streetmeatasia.com ,, sick but definately not gay (you've never flown to Thailand for a holiday??) ... doesn't this site love midgettrannyporn ? I'd love to work at the SEC ... I'd be their worst nightmare ... I have a series 7 , I understand the law , I worked as a computer security person at a defense firm and I'd be more than happy to dig around for a few months file a whistleblower claim and go on 60 minutes.
'Randall Flagg' and his minions are running the show.
.
The time is soon to make The Stand.
I'm waiting for them to realize the true f-p/e is "not a meaningful number"
Lets get the parabolic move up over with
It is all about confidence. confidence in the dollar. forget the market, that's just a second derivative. Until people lose faith or belief in what they wake up and see and are beaten over the head with everyday this will go on. The fed is like Cortez right now, and they are burning those boats as fast as they can so everyone feels like the choice of going back is completely off the table.
... or until America's enormous appetite for distraction wanes.
Typo
!!!! Obama Goes For A Walk !!!!
There is something called a cattle prod...
Yes there is. I wonder if all the "dollar is about to crash" guys ever imagined the entire world devaluing all their currencies at the same time. so technically one currency can't crash. they either all devalue at the same rate so none of them stands out too much, or they slip on a banana peel and the whole world falls into the abyss.
Exactly, this could go on for years. the market keeps going up. if you hold cash, you get killed on that cash. even with all devaluing the cash becomes worth less. then why not get into say GE or PFE or J and J. those companies will never go to zero. But they will go up if the market goes up. They pay a small dividend and are better than cash.
No it can't, you both are not considering Saudi, Russian, and China which hold the majority of the wests debt. Backed, or soon to be, by gold and or oil, their currency's combined influence is what has our world reserve status about to be pushed over the cliff with price inflation and a majority of our citizens slaves to a completely corrupt system. Once enough resources mature, it will be a complete and utter end of this polluted society that refuses to see reality for what it truely is, haste making waste, minds that trick themselves into polluting their own bodies and then wasting money on the cures. It won't and it can't last, we have seen the worst, and it is us.
Nice "Let's all play nice" theory but it won't work long. The US has been exporting inflation. It's time countries return the favor big time.
Countries are already positioning themselves for the dollar crash. A sure is they are asking for their gold back from the US federal Reserve. This should be raising red flags for everyone in the US.
No longer World Wars, but currency wars.
Other countries realize the best way to defeat the US is economically, not militarily. Like the old Soviet Union.
The Fed will stop printing when Wall Street Bankers and politicians fear for their lives. Until fear is the emotion running the street, the Fed will continue to print.
Think about how much the Fed has riding on the equity markets... The fed knows if the ever have a chance to exit the party, they have to get consumers spending again, especially the ones that invest in equities. Another huge plunge in the market and consumer spending at all levels is non-existent. The Fed also know it will lose investors in equities for a lifetime with another crash of the markets.
Not just consumer speeding, how about all of the massive public and pension liabilities ? How will pensions get paid with another huge crash in the markets? Many companies and most states could ill afford to make up the difference with cash to fund their pension liabilities when market performance tanks.
I know the Fed is the only one supporting this BS market right now, but I also know the Fed can not, and will not let the equity market fail, for if it does, the entire US economy will collapse, period.
So, rather than continue to play in a rigged game when I know the deck is stacked, I keep sliding my profits off the table and to the side where i will do my own stacking, with Ammo, Gold, Silver, and Liquor.
and Liquor.
especially liquor, othewise we might remember the US military action in Somalia earlier today, you know the military action approved by congress and the President to have American forces conduct surgical strikes in that failed African country...http://online.wsj.com/article/SB1000142405270230372260457911791132802204...
the always (can someone please fill by glass) anti-war democratic party is of course in full support of these peace actions, Rep. Adam Schiff (D., Calif) said he supported the Somalia (peace) raid
Hey, hey, Obama's gay, how many kids did he drone today!
Hey, hey, Obama's gay, how many kids did he drone today!
Hey, hey, Obama's gay, how many kids did he drone today!
Hey, hey, Obama's gay, how many kids did he drone today!
Astute observations.
P.S. Wanna trade some of my aged MRE's for some of your Aged Liquor?
Why not take your principle out and gamble with the profits. I hate Cramer but he is right when he says play wiht the house's money.
Cuz if you're holding your principle in cash when inflation takes off, you're wiped out.
And we need the "profits" just to stay even, so gambling with it is as dangerous as gambling always is.
Tje inverseb of your argument is that the FED cannont print enough to keep the stock market from falling as doing that will also collapse the economy through an inflationary death spiral. To prevent a sell off the FED has to increase QE exponentially but even the the economy gets worse as inflation ramps up and investors hoard cash assets for the end game. The FED is in the biggest liquidity trap in history.
Taper? LOL! They're gonna fuckin double QE to $170 Billion once the market crashes.
Its all they got.
OT...
Does EKM still lurk about?
He called the collapse (saying it would be caused by the collapse of oil market) a couple months ago and hasn't been around for a while. Never say never, and never call the end.
Whoa... just tried to go to EKM's user page. I think he's been banned (or profile deleted, but I don't think deletions are possible on ZH.)
Last post seems to be around 7/26 or so.
Any guesses on who gets that new $100 bill first ? It's a F*(&ing joke !
OT, but thought some of you may get some humor out of this. This is the blockchain record of the FBI's bitcoin account. People are sending .000001BTC with messages to the FBI.
http://blockchain.info/address/1F1tAaz5x1HUXrCNLbtMDqcw6o5GNn4xqX?offset...
http://www.bis.org/publ/work431.htm
why buy liquor?
You can still buy pressure canners, and copper tubing, at Home Depot .....
House prices and Stocks are a Massive Bubble. The reset is going to be swift, painful and very Fugly.
I listened to Louis Black last night on Netflix. He is one of the few comedians who touches on the subject pretty well...and funny.
The dream is a delusion. Malthus called Economics a dismal science because, comparatively speaking, throughout history "bad"
economic times have been the norm with "good or best" economic times being relatively few and far between; the power elite playing a large role in that. The rise of a middle class was a recent phenomenon that allowed not only for the opportunity of good times but at least for the concept, or chance, of "better " times.
But human behavior being what it is, it is always only a matter of time until a power elite UNIMPEDED consumes the better or best times ultimately bringing the house down on their own heads as well.
The pendulum swings powered by human memory.
As long as a majority of people who had lived through the Great Depression remained alive the odds of "it" happening again were small. Once most of them were gone the power elite swung into action, changing banking laws to suit their own purposes. Now as a result we, once again, face the prevailing bad times. We are saddened at the world our children will now live in as opposed to the world we brought them up in. One day we and whatever is left of the middle class ie., those of us who lived the majority of our lives in the good times, will all be gone with the collective memory of that short era left to the history books. And absent a middle class and unimpeded, the power elite will prevail until like the tigers in Little Black Sambo they melt into butter.
**It's time to republish the original version of Little Black Sambo: nobody's added Botox to the Mona Lisa.......yet.
I thnik if ZH has been as dilligent in pushing the bullcase at al lthe right times, it would have made its readers very rich instead of bitter and frustrated..
Given the amount of large sustained bull moves in the market for the past several years, you'd think at least one of them warrant a sexy pitch on ZH.
"I thnik if ZH has been as dilligent in pushing the bullcase at al lthe right times, it would have made its readers very rich instead of bitter and frustrated.."
The "bullcase" is based entirely on irrational exuberance and an impossible to accurately predict term of market self-delusion. Reality and knowledge bring frustration. I am amazed at how long they've been able to keep this game going. But that which cannot continue indefinitely won't. Simple as that. You can't borrow yourself into prosperity. Neither can nations or the world.
ZH has most definitely been pushing the true "bullcase", at least for those of us who were blind-sided by 2008. Thank you ZH.
well, there are a lot of different reasons for the markets behavior at any given time.. After all, what the markets do is the collection of individual actions of market participants..
you can always construct the bullish and the bearish case for what stocks "Should" do next.. But it's more important to understant what people would do since they are the ones
driving the market by voting with their collective "buy" and "sell" decisions..
As far as exuberance being rational or irrational - it's a lot less clear cut than you stipulate.. P/E on SP500 is 16.. One can certainly argue that it should be lower given the fact that
earnings growth is flatlning at last.. But at the same time, 16 is hardly exuberant.. The multiple went up to 30+ during the real bout of exuberance in 1999-2000.. So one can construct
a solid bullish argument as well since the multiple is not unduly taxing and the public has generally got itself rather underinvested in the asset class.. And if you study your economic
history anyone who will get long at current valuation levels would do jsut fine if they have a 10yr + time horizon even if we are due for some pullbacks in the meantime..
As far as borrowing is concerned, you have to remember that for every borrower there is a lender.. We borrow from China because they need to employ 100s of millions of people and this
is the only way they can manage that process.. In essence, our collective lifestyles are augmented because China is prostituting its labor for our benefit
P/E is bullshit given that the FED is providing companies the impetus to buy back stock. Its not a free market - its a constructed market that creates an illusion of prosperity. They are nominal values, but, everywhere real exchange values are falling. Its costing more everywhere to get less. This is not a symptom of a growth economy - its a symptom of debt issuance (central bank) and suppression of real price discovery. 50 million Americans on food stamps is not a recipe for growth. Its a recipe for disaster.
True. Nobody knows when "exhuberance" or malfeasance is fully priced in. But, so long as the economy ramains standing on pegged legs, it remains fragile because nothing reall buttresses it. So, (as Kevin O'leary says) for that reason - I'm out.
Happy folks like us can instantly recognize misery looking for company. We shall not be joining you. Thanks anyway.
Well they did you know, ZH has pointed out the bull market based on fed money since the beginning.
Heck Bernanke his own self did everything but knock on your door personnally and hand you a brochure.
So what's your complaint exactly?
Everyone who reads the columns here should read this book if they haven't already, written before the 2008 crisis:
Greenspan's Bubbles: The Age of Ignorance at the Federal Reserve
http://www.amazon.com/Greenspans-Bubbles-Ignorance-Federal-Reserve/dp/0071591583/ref=sr_1_1?s=books&ie=UTF8&qid=1381071091&sr=1-1
Short video review:
http://www.youtube.com/watch?v=Kt0r5XvFqoo
How funny. What Wall St. calls 'multiple expansion' is nothing more than the 'Greater Fool Theory' in full bloom!