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

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)