Santelli's Primer On The 'Miracle' Of Earnings Expectations

Our last discussion of the miracle of earnings expectations focused on the bottom-up hockey-stick that it seems the consensus believes is ahead (always out there in the future). Today's 'factual' and 'empirical' whiteboard lecture on the 'miracle' comes courtesy of CNBC's Rick Santelli, who appears as frustrated at his co-correspondents permabullishness (see Liesman's flip-flopping views on retail sales today) as the implicit disconnect between the market and fundamentals. To wit, the fact that expectations for GDP growth and earnings are so divergent. With earnings growth expected to be +14.7% this year and nominal GDP around +3-4%, Santelli asks his guest where nominal GDP 'normally' is for such strong earnings expectations - the answer 7.6% nominal GDP growth.

"It's very simple, nominal GDP is sales; it's growth. It's tough to grow earnings without sales," and yet - thanks to the inexorable outpouring of free money, they grow (or not). The current environment has very low wage growth and very low earnings growth, but "what is happening with the monetary system is we're flooding the system with money, and we get data like we saw today where energy prices are spiking again," leaving very little disposable income for the average household.

The kicker comes right at the end... on what really happened in retail sales today - just as we noted earlier.



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