Ignoring the ongoing onslaught of one-off items that plague earnings reports and make apples to apples comparisons practically impossible, the fact of the matter as the following chart from Goldman so decisively points out, despite the ever-present hope that it's different this time, recurring margins (long-believed to be the great white hope that earnings multiples will grow into), have collapsed to their lowest in 3 years. Combine that with slumping sales, record high leverage (providing little room for moar financial engineering), record high margin debt (no room for error), and a growing sentiment shift to 'knowing' that it's all artificial and BTFATH seems like a stretch to us. It would appear Goldman agrees as 4 out of the 5 valuation approaches they use signal stocks are expensive.
Adjusted for one-off 'tricks' recurring margins for the S&P 500 are at 3-year lows...
But, the fact is that all of the gains of the index this year have come from multiple expansion hope...
as investors have piled in with record amounts of margined leverage...
As top-line sales growth has slumped...
leaving stocks expensive on all but "The Fed Model" basis...
Which Greenspan cited this week: The stock market “has gone up a huge amount, but it’s not bubbly in any sense that I see..."
Even with Cyclically-Adjusted P/E signalling major overvaluation...
But with financial engineering likley to hit a wall (of credit growth slowing - thanks to the Fed) as leverage hits a record high...
Investors who are BTFATH must ask themselves just who is the greater fool they will sell to...