"We Shouldn't Be At New All Time Highs" - Even Larry Fink Doesn't Get It

Shortly after Blackrock announced results this morning, which beat deeply discounted expectations (BLK reported EPS of $4.78, above the $4.77 consensus, even though expectations were higher than the reported earnings just one week ago even as revenues declined 3.5% Y/Y), the CEO of the world's largest asset manager, Larry Fink, appeared on CNBC to give his opinion on the US equity market. However, instead of cheerleading the recent torrid rally, Fink said the stock market should not be trading at record highs because the data on fund flows don't support the moves.

"I don't think we have enough evidence to justify these levels in the equity market at this moment," Fink said Thursday on CNBC's "Squawk Box." This is something we showed recently when we showed the unprecedented outflows from equity funds, wondering who is buying.

Fink then confirmed that the buying scramble has little to do with an inflow of new money, and is mostly the result of the record short squeeze which we highlighted several days ago.


According to Fink, the recent rally has been supported by institutional investors covering shorts. "Since Brexit, we've seen ETF flows almost at record levels ... $18 billion of inflows," Fink said. "However, in the mutual fund area, we're continuing to see outflows."

What that tells you is retail investors are pulling out, he said. "You're seeing institutions who were short going into Brexit ... all now rushing in to recalibrate their portfolios."

Another curious fund flow: the ongoing rush into dividend plays. Fink said he's been seeing huge inflows in fixed-income products. "So you're seeing a risk-off trade, as we call it, around the world."

Fink also confirmed what we showed two days ago, namely that the true force behind the recent surge is a familiar one: central banks.

Fink said extraordinary central bank asset purchases has been inflating stocks prices. "I don't think we should be at new [stock] highs," he said. "All the stock repurchases, you're seeing this reduction in investable assets."

HIs summary:

"We are seeing investors worldwide pausing, we are seeing quite a large sum of money being pulled out of equities over the last year. And yet we are at record highs. That's just a sign of how much money is being taken out by central banks in their bond purchases, and stock repurchases from companies."

We showed this on Tuesday as follows: 

But while Fink is skeptical about the market at these prices, he noted that there's not enough information to say whether the stock market is overvalued at these levels. Earnings season will be key to answering that question, he added. "If corporate earnings are going up, then it may validate these [market] prices."

“If we don’t see better-than-anticipated corporate earnings I think the rally will be shortlived,” he added.

Considering that on a GAAP basis, the S&P500 is currently generating about 90 in earnings, or equivalent to a 24x P/E multiple, it is hard to see how one can justify the move "fundamentally."