Forget the "wall of worry," former Reagan OMB Director David Stockman warns a shocked CNBC anchorette that "the frogs are in the boiling water again on Wall Street...and they don't have enough sense to get out." The last 600 days of range-bound trading marks the top he explains adding that "we have reached the cyclical top in both GDP and earnings," which leaves a market trading at extremely expensive levels - "why would you stay in?" Stockman believes that the world economy is heading into a "deep and lasting deflationary recession." There is no evidence that America is immune, he adds, warning of the potential for 40% downside and just 2% upside in stocks...
As Stockman recently concluded, the last time the Fed’s money-pumping exercise in bubble finance ran out of steam in 2007, an unmistakable “X” appeared in the labor market data. That is, the index of labor conditions rolled over in January 2007, even as the monthly BLS job count continued to rise, adding nearly 1 million “new jobs” before peaking 12 months later in January 2008.
Alas, another year later 4.5 million of these peak “jobs” had disappeared—–on the way to an eventual plunge of 9 million.
Here’s the thing. About 90% of Q1 earnings are now in, and the S&P’s LTM EPS has posted at $87 per share. That figure, of course, is the GAAP number reported to the SEC on penalty of jail time.
Accordingly, actual profits are down by 18% from the $106 per share peak of September 2014, and that means Wall Street’s frogs are now boiling in water that has heated to 23.7X.
But don’t tell the Jeffrey Saut brigade. The abominable “X” is back, too, and even the casino empties out when recession actually hits.
But that’s not the half of it. Wall Street’s cockeyed faith that another stock market bailout is on the way rests on the idea of a post-election return to fiscal stimulus—-since even the casino punters now see that the jig is up on ZIRP, NIRP and QE.
Here’s the problem. When General (Paul) Ryan gets together in the oval office with either Hillbama or the Donald next February the budget projections will already be deep in trillion dollar deficits under current policy. Therefore what will get stimulated, if anything, is a colossal political firestorm over who bankrupted the nation.
There will not be another fiscal stimulus this go round. This time the frogs of Wall Street will be left to boil.