... it remains to be seen if market bubblemania on the back of central bank multiple expanion around the world can thrive, especially as corporate cash flow (and revenue, and GAAP EPS) growth trickles to a halt, coupled with an energy and junk bond market implosion, but when it comes to Barron's covers top-ticking the market, it is never different.
As of Q3, when adding the consensus number for Q4 EPS, we find that while non-GAAP EPS is set to rise by a healthy 6.6%, real rarnings, as in GAAP EPS, will actually decline by 1.3% in 2014, meaning that for yet another year, the only upside in stocks has been due to - thank you Fed - multiples expansion.
Another day, another case of central banks, not one but two this time, dictating "price" action.
Here we go again. By now everyone, including 2 year old E-trade babies and Atari algos know, that the only reason the market soared from the October 15 bottom, a move which we showed was entirely due to multiple expansion and thus nothing to do with earnings and everything to do with faith in even more free central-planning liquidity (something the PBOC was all too happy to provide overnight), was James Bullard's casual "QE4" hint on Bloomberg TV. And now that the market is at ridiculous all time highs and trading above 19x GAAP PE, far above the level when in September the IMF, the G-20, the BIS and even the Fed all warned of assets bubbles, here is Bullard once again, with a fresh mea culpa and a new attempt to jawbone stocks, only this time back down, because as Dow Jones reports, "Bullard Says Markets Misread Him In October Bond-Buying Dustup."
Goldman may have been right that there will be no more multiple expansion in 2015, but there sure was quite a bit overnight thanks to the latest verbal and actual central bank interventions by the ECB and the PBOC. And as a result, the biggest beneficiary is the S&P500, which is set to open just around 2070, or about 30 points shy of Goldman's 2015 S&P500 year-end target. And for those who still care about such things, the chart below shows that fundamentally, the S&P is now trading at 17.5x non-GAAP LTM EPS, and, drumroll, 19.2X GAAP PE!
"The multiple expansion phase of the current bull market ended in 2013. The strong S&P 500 YTD price gain of 10% roughly matches the realized year/year EPS growth of the index. The index has climbed by 17% annually during the past three years as the consensus forward P/E multiple surged by nearly 60% from 10x to 16x. ... We forecast US stocks will deliver a modest total return of 5% in 2015, in line with profit growth. The US economy will expand at a brisk pace. Corporations will boost sales and keep margins elevated allowing managements to both invest for growth and return cash to shareholders via buybacks and dividends. Investors will cheer these positive fundamental developments."
The BTFDippier of the fast money is already rotating into a long-Europe mode: their entire thesis is that sooner or later the whales will have no choice but to follow the momentum chasers right back into Europe, because where else are they going to go: in the "safety" of the S&P's 19x GAAP P/E? In theory this would be a great strategy, if only in a world in which nobody actually does any fundamental homework and the only thing that matters is frontrunning the next great sucker. In practice, it is fatally wrong. As the following observation from hedge fund Lyxor shows, while CTA and momentum strats have indeed bailed on Europe in recent months, the so-called smart money, the "global macro" funds never left.
While the Tesla endgame is increasingly apparent to anyone who is not hypnotized by the Musk siren , here, for everyone else, are three charts that scream that the Amazon "growth story" revulsion is just one determined seller away.
Update: the reason FB stock is now crashing is because moments ago, the CFO stunned the investing community when he announced that FaceBook costs next year will go up by 55-75% without giving guidance on 2015 revenue. He also announced that WhatsApp, FB's $19 billion acqusition, was "accretive" to the tune of a $232 million loss in the past 6 months. Stock now down over 10%.
Facebook reported that its Monthly Active Users for the US and Canada - the segment that generates roughly half of all FB sales - rose to a record 206 million. Putting that number in context: in the same two countries, there are currently about 155 million people employed. In other words, there are about 1.3 Facebook users for every single employed person in the US and Canada.
The last time the stock market reached a fevered peak and began to wobble unexpectedly was August 2007. Markets were most definitely not in the classic “price discovery” business. Instead, the stock market had discovered the “goldilocks economy." But what is profoundly different this time is that the Fed is out of dry powder. Its can’t slash the discount rate as Bernanke did in August 2007 or continuously reduce it federal funds target on a trip from 6% all the way down to zero. Nor can it resort to massive balance sheet expansion. That card has been played and a replay would only spook the market even more. So this time is different. The gamblers are scampering around the casino fixing to buy the dip as soon as white smoke wafts from the Eccles Building. But none is coming. For the first time in 25- years, the Wall Street gamblers are home alone.
JPM Results Plagued By Recurring "Non-Recurring" Legal Charges, Stagnant Trading Revenues, Record Low NIMSubmitted by Tyler Durden on 10/14/2014 08:23 -0400
Another quarter down and JPM's earnings are more of the same. We don't recall if JPM's legal charges in the past few years are now $20, $30, $40 billion or more, but as of this morning they are X + $1 billion. In the company's ongoing mockery of the term "one-time, non-recurring", JPM added $1.062 billion in recurring, multiple-time pretax legal expenses, a $0.26 EPS impact to Pro Forma EPS, EPS which also declined courtesy of JPM's repurchase of $1.5 billion in shares in the quarter thus reducing the number of "S". So what were the bottom line numbers: EPS $1.36, a miss to estimate of $1.39;Revenue (non-GAAP revenue that is): $25.16 billion, better than the $24.43 billion; that said GAAP net revenue was $24.246 billion; Non-interest expense rose tom $15.8 billion, well above the $14.52 billion expected, and more than the $15.43 billion Q/Q
It's Official: Hewlett-Packard To Split In Two, Fire Another 5,000; Goldman Notches Second Spin-Off Success After PayPalSubmitted by Tyler Durden on 10/06/2014 06:41 -0400
While the WSJ already broke the news yesterday that Hewlett Packard would split in two companies, and as such today's "shocking" announcement will hardly have the impact of the just as "surprising" split of PayPal which came on the last day of September, what is probably most notable - in addition to the news that HPQ will fire another 5,000 workers, bringing the total to 55,000 - is that just as in the case of PayPal, so for Hewlett-Packard, the financial advisor, i.e., the company which pitched the spin off to executives, was none other than Goldman. One wonders where else Goldman is advising on "spin offs" to take advantage of the bubbly stock market valuations. As a reminder, HPQ is only doing this deal and accessing the public markets now because several years ago it tried to do exactly the same thing in a private transaction with a strategic or financial buyer, and found no bids. Luckily, now we have central bank froth and pervasive risk euphoria to help management bail out at the highest possible stock price.
There is nothing like the release of secret tape recordings to clarify an inconclusive debate. Actually, what the tapes really show is that the Fed’s latest policy contraption - macro-prudential regulation through a financial stability committee - is just a useless exercise in CYA. Macro-pru is an impossible delusion that should not be taken seriously be sensible adults. It is not, as Janet Yellen insists, a supplementary tool to contain and remediate the unintended consequence - that is, excessive financial speculation - of the Fed’s primary drive to achieve full employment and fill the GDP bathtub to the very brim of its potential. Instead, rampant speculation, excessive leverage, phony liquidity and massive financial instability are the only real result of current Fed policy.
The starting point in comprehending the dynamics of modern "markets' is to recognize that once they gain a head of steam, financial bubbles tend to envelope virtually every nook and cranny of the economy, creating terrible distortions and destructive excesses as they rumble forward. In this instance, Wolf Richter explains how Silicon Valley has once again (like 1999-2000) been transformed into a rollicking capital “burn rate” machine that has spawned a whole economy based on striving for bigger losses, not better profits. Even the leading venture capitalists now recognize that the insanity of the dotcom era has re-emerged. One of these days, even the monetary politburo may notice. But by then it will be too late. Again.