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Here Is The Driver Behind The European Stock Surge (Hint: Not Earnings)

Tyler Durden's picture




 

Just two days ago we presented a chart which we said showed the "biggest problem for European stocks." The chart showed that since Mario Draghi's "whatever it takes" speech in July 2012, European equity prices are up 50% even as corporate earnings have actually declined by 7%!

So what is going on in Europe? Nothing short of the biggest multiple expansion episode in history.

As SocGen calculated two days ago "the reported P/E multiple on Eurozone equities has risen from 11.5x to 18.7x today – a multiple expansion of over 60% in 30 months – and now stands at a premium to both the rest of Europe and RoW."

And now, with today's latest surge in the Eurostoxx, the multiple has hit what may well be a record 19x, pushing the expansion into the 60%+ range over the past two and a half years, and making Europe the most expensive developed market on a PE-multiple basis in the entire world.

In short: European valuations are at nosebleed levels, and unless European corporations finally succeed in actually generating some incremental revenues and earnings - something they have shown an allergic reaction to since 2012 - said valuations have never been higher.

And that, together with the ECB's backstop, is the only thing that is driving European stocks higher.

But don't worry: Mario Draghi has your back, so what can possibly go wrong (for one answer just ask those who had put all their faith in central banks, and were short the Swiss Franc as recently as a week ago)

 

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Thu, 01/22/2015 - 16:39 | 5693588 Newsboy
Newsboy's picture

Driverless train.

Thu, 01/22/2015 - 16:40 | 5693598 NotApplicable
NotApplicable's picture

What??? Doesn't everyone love P/E growth?

Thu, 01/22/2015 - 17:08 | 5693701 knukles
knukles's picture

If the P/E is over extended, then in the fine time honored tradition of The Krugster, buy MOAR!

Thu, 01/22/2015 - 17:42 | 5693818 ukspreads
ukspreads's picture

This story is no different to when the FED started QE and look what happened to the DOW / S&P after three rounds.... Everyone knows it's all BS, but to a trader, it's an opportunity. You can either talk about it or buy it...

Thu, 01/22/2015 - 16:45 | 5693617 PartysOver
PartysOver's picture

I beg to differ.  ECB is now driving the train.    I just hope the finish the tunnel construction or it could get ugly.

Thu, 01/22/2015 - 17:27 | 5693778 TheRideNeverEnds
TheRideNeverEnds's picture

We will be fine, they can keep this round robin printing up till the end of time.  

 

ie:  USA prints as that ends Japan ramps up its printing, after the effect of theirs slows down China ramps up their printing when that cools down and ECB ramps up their printing and so on and so forth rround and round it goes ad infinitum.

 

The only real question is who will be the next to announce MOAR!  I am thinking it is back the the US at this point, especially with dollar strengh showing no sings of slowing down.   am I missing someone? 

Thu, 01/22/2015 - 16:39 | 5693592 Tsar Pointless
Tsar Pointless's picture

It may be the most expensive on a P/E basis, but on a BS basis, it's a screaming buy.

Thu, 01/22/2015 - 16:40 | 5693596 Soul Glow
Soul Glow's picture

When priced in euros everything is a screaming buy.

Thu, 01/22/2015 - 16:47 | 5693621 LawsofPhysics
LawsofPhysics's picture

Interesting perspective.  Perhaps the Swiss will simply buy the entire E.Z. then?

Thu, 01/22/2015 - 17:01 | 5693670 Soul Glow
Soul Glow's picture

Once Draghi starts buying $50B/mo of worthless eurobonds (except Greece's) I think the swiss will do as they please.

Thu, 01/22/2015 - 16:41 | 5693602 madbraz
madbraz's picture

just like corporations are masters at buying back their stock at the peak, so it will be for the ECB.  this will be an utter failure, draghi's pathetic swan song.

Thu, 01/22/2015 - 16:55 | 5693653 you enjoy myself
you enjoy myself's picture

no, no, all wrong.  you see, 3-6 months from now when stocks are at even more ridiculous P/E's, the ECB will double (then triple) their QE with the perfectly sane rationale that stocks are too expensive. 

Thu, 01/22/2015 - 16:41 | 5693605 Spungo
Spungo's picture

Buying stocks with no earnings is like getting a tranny massage without the massage.

Thu, 01/22/2015 - 16:42 | 5693610 Headbanger
Headbanger's picture

Nahhh.. Moar like being married.

Thu, 01/22/2015 - 17:35 | 5693612 falak pema
falak pema's picture

what crap, just look at the CAC 40.

Europe is part of the oligarchy cabal but the P/E is modest in comparison with WS.

Race to bottom, but before we hit the asymptote the EU can still be squeezed for more blood.

arbeit macht frei is the universal cry of the the Oligarchs. They sing it now in Draghi ville.

Thu, 01/22/2015 - 16:45 | 5693614 Sudden Debt
Sudden Debt's picture

It’s a math thing... all technical stuff and so on... just buy!

Thu, 01/22/2015 - 16:44 | 5693618 i_call_you_my_base
i_call_you_my_base's picture

Are the europeans getting on the stock buyback bonus gravy train?

Thu, 01/22/2015 - 16:55 | 5693651 Sudden Debt
Sudden Debt's picture

Everybody who has a few savings on his account is actually getting phonecalls from their bank for free investment advise...

I had one, my parents had one, my brother, most of my friends, you name it.

they’re going all in to get the people buy 1% bonds and div stocks. 

And I’m pretty sure when the numbers come out that more than enough people will have taken the bait...

Thu, 01/22/2015 - 16:49 | 5693630 NEOSERF
NEOSERF's picture

Don't ask questions or shine lights on dark corners...just BUY!,BUY!,BUY!

Thu, 01/22/2015 - 16:51 | 5693642 Archetype
Archetype's picture

Greece will leave the € on the 25th and ECB will bail out the banks with greek government bonds on their balance sheets. Greece out of the eurozone and the banks get richer. Nobrainer?

Thu, 01/22/2015 - 16:59 | 5693666 Tsar Pointless
Tsar Pointless's picture

Indeed, it is. It's so easy, even a Central Banker can do it!

Thu, 01/22/2015 - 16:59 | 5693665 SillySalesmanQu...
SillySalesmanQuestion's picture

QE version ECB must have started early...much like Christmas shopping, you can never start too early.

Thu, 01/22/2015 - 17:04 | 5693678 XRAYD
XRAYD's picture

So, GS/JPM trade stocks in Europe too?  The must have muppets there also.

Thu, 01/22/2015 - 17:21 | 5693770 john milton
john milton's picture

whats the substitute for muppet in Europe?? Tintin..oh no pls Tyler dont show Tintin gaping!!

Thu, 01/22/2015 - 17:05 | 5693680 buzzy_the_pirate_dog
buzzy_the_pirate_dog's picture

P/E high is better, right?  Bullish.

Nothing but up from here.  MOAR, oh baby MOAR she cried.  But, alas, I shorted her.

Thu, 01/22/2015 - 17:05 | 5693682 buzzy_the_pirate_dog
buzzy_the_pirate_dog's picture

P/E high is better, right?  Bullish.

Nothing but up from here.  MOAR, oh baby MOAR she cried.  But, alas, I shorted her.

Thu, 01/22/2015 - 17:16 | 5693703 Everybodys All ...
Everybodys All American's picture

... and that's if you believe these non-GAAP earnings reports !!!

I'm now quite sure this will all end well though because King Obama the first said we are passed the crisis. Just remember all the wonderful people who brought us to this wonderful jobless economy. Bernanke, Greenspan, Yellen, Draghi, Obama.

Thu, 01/22/2015 - 17:11 | 5693705 SillyWabbits
SillyWabbits's picture

P/E is a mathematical representation of mathematical factors.

EPS is a mathematical representation of mathematical factors.

Moral of the story:

Figures don’t lie

But

Liars can figure.

Go figure.

Thu, 01/22/2015 - 17:12 | 5693711 sidiji
sidiji's picture

no the most expensive market is the US with 8 years of non stop QE...so gen been smoking the good stuff again

Thu, 01/22/2015 - 17:11 | 5693712 Baby Eating Dingo22
Baby Eating Dingo22's picture

But look closely and take note earnings have started to move higher

Patience Grasshopper

Eventually, you too will be stepped on

Thu, 01/22/2015 - 17:14 | 5693732 daxtonbrown
daxtonbrown's picture

I wish I could get an 18.7 PE. The energy stock I trade is at 8.7, even though it's niche is decoupled from the oil sector. I'm not sure traditional fundamental stock valuation makes any sense n this market, just buy the flow.

Thu, 01/22/2015 - 17:19 | 5693750 devo
devo's picture

I bought some euro stocks a few weeks ago. Sold the news. Thanks ECB.

Of course this means the  US will fireup more QE to combat the strong dollar. Time to buy SPY. Rinse, repeat, retire.

Thu, 01/22/2015 - 17:18 | 5693758 tumblemore
tumblemore's picture

QE = the european branch of the banking mafia are about to be given vast sums of money in exchange for their worthless toxic mortgage-backed assets.

 

So where will that money go? Same place it went in the US - stocks.

Thu, 01/22/2015 - 17:37 | 5693807 sidiji
sidiji's picture

I think somebody is lying...I track euro stocks for a living and they havent gone anywhere since 2009.  Europe is where US was in 2009...but hey dont take my word for it:  http://finance.yahoo.com/news/graphic-tide-turning-favour-europe-161035851.html

Thu, 01/22/2015 - 17:40 | 5693827 Finnman
Finnman's picture

Super Mario Macarone is the greatest imperator in Europe :-)

Thu, 01/22/2015 - 17:46 | 5693860 Yen Cross
Yen Cross's picture

   But a major bank gave the OK(justified) for the ECB to purchase the "kitchen sink" this morning. Soc Gen suggests that the ECB takeup include equities and various other single ply paper.

Thu, 01/22/2015 - 19:18 | 5694194 orangegeek
orangegeek's picture

funny how Draghi pushed his narrative to March.

 

why not next week?  Because Draghi is full of shit and can't do QE next week, next month or next year - unless Merkel agress - which she has not.

 

kick the can - again

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