Thursday, July 14, 2016

Greater Fools Storm The Casino - By David Stockman

While we are waiting it might be wondered, however, whether nearly two decades of central bank financial repression have not merely destroyed honest price discovery on Wall Street. Perhaps it has actually extinguished brain function entirely among the corporal’s guard of carbon units that remain.

Yes, it is not surprising at all that the robo-machines are now gunning for the 2200 point on the S&P 500 charts. That’s what they do.

What defies explanation, however, is that the several dozen humans left on Wall Street who apparently talk to Bob Pisani are actually attempting to rationalize this “breakout” of, well, madness.

According to JPMorgan’s latest thoughts, for example, it’s all explained by Mr. Market hard at work discounting a meme called “17x/$130”.

Market update – more of the same for this market. The 17x/$130 argument continues to resonate (that combination of numbers points to 2200). It’s still very, very early in the CQ2 season but the indications so are more positive than negative (AA, Daimler, PEP, Samsung, SIMO, STX, WDC, etc) and that is helping investors look past the earnings recession and is bolstering confidence in a ~$130 number for next year.

Let’s see. Before we get to whatever massaged and medicated version of “earnings” JPM is talking about with its $130 per share number, it would be useful to start with reality.

According to Howard Silverblatt, the S&P’s authority on these matters, reported (GAAP) earnings for the March LTM finally came in at $86.44 per share.
So barring some near-term earnings miracle, the market is now valued at a nosebleed 24.9X. The last time it was near that level outside of outright recession was on May 16, 2008.

At that point, March 2008 LTM earnings on a GAAP basis had posted at $60.39 per share. So when the market hit an intraday high of 1430 the implied multiple was nearly 24X.

Needless to say, it was a long way down from there. In fact, ten months later the market was 53% lower, and S&P reported earnings actually bottomed that quarter at $6.86 per share, or 90% lower…………….

(Full text at link below)

That is, not in a world with $13 trillion in subzero sovereign debt, liquidity soaked markets riddled with FEDs (financial explosive devices), the Red Ponzi teetering more dangerously every week, the Italian and European banking system slinking toward the brink, crude oil heading back down for the count, Japan contemplating fiscal hari-kari, and countless more.

It’s also an insult to intelligence in a world where bulging inventories remind that the business cycle has not been abolished, where faltering US exports matter on the margin, where 90% of households are tapped out and where corporate America is buying back its stock, not investing in maintenance of the capital stock, let alone improvement and growth.

To say the least, there is no reason whatsoever to believe that the domestic and global economies will come bounding back anytime soon. A 30% gain in corporate profits during the next 18 months is not even a remote possibility.

Actually, the latter proposition is proof positive that the casino has been largely emptied of human intelligence. It apparently remains occupied by a motley assembly of brigands and snake oil vendors who are calling the greater fools to one final slaughter.

Given the evident facts of life, you can’t say the latter don’t deserve exactly the condign punishment the economic gods surely have in store.