The REAL Reason Behind the Volatility In Today’s Stock Mkt
Posted: Sun Mar 15, 2015 2:24 pmI like Stockman. Unlike some other writers, he backs up his assertions with data and examples. His explanation as to why ZIRP is so damaging and why today's earnings and those of 10 years ago are truly like apples and oranges makes sense to me.
http://www.munknee.com/the-real-reason- ... ck-market/
The current stock market volatility is really not about interest rate ticks in the federal funds market. It’s actually about the fact that the entire post-crisis bull market is a monumental house of cards built on a historically aberrant monetary regime that is unsustainable and eventually heading for a crash landing.
he six year bull market amounts to this. The quality of current earnings is being deeply impaired by the very cash extraction and recycling process that has funded the soaring index averages.
The above means that PE multiples should be shrinking, not expanding to nearly all-time highs yet, with 98% of companies reporting, GAAP earnings for the S&P 500 came in at $102/share during Q4, meaning that today’s 6th anniversary market is trading at 20.5X LTM profits. Needless to say, the last time outside of recession quarters that the broad market PE ratio was above 20X was during the fall of 2007.
Even that is cold comfort, however. At least back then when reported earnings peaked at $85 per share in Q2 2007 they had not yet been
- deformed by 75 quarters of ZIRP (Does he mean 75 months?) – a distortion that has subsequently ballooned earnings by $5-10 per share owing to artificially cheap interest carry costs on upwards of $3 trillion of S&P company debt.
- Nor had a concerted global central bank driven economic boom lifted materials, energy and industrial company earnings to wholly artificial heights.
- Nor had virtually zero cost funding—–extracted from the hides of savers and depositors—–artificially boosted bank and financial company earnings by triple digit billions.
Conclusion: there has been an enormous deterioration in the quality of reported earnings. On an apples-to-apples basis, today’s $102/share does not likely even equal the $85/share reported way back in the June 2007 quarter. Moreover, after adjusting for the impact of inflation it is not even close.
http://www.munknee.com/the-real-reason- ... ck-market/
The current stock market volatility is really not about interest rate ticks in the federal funds market. It’s actually about the fact that the entire post-crisis bull market is a monumental house of cards built on a historically aberrant monetary regime that is unsustainable and eventually heading for a crash landing.
he six year bull market amounts to this. The quality of current earnings is being deeply impaired by the very cash extraction and recycling process that has funded the soaring index averages.
The above means that PE multiples should be shrinking, not expanding to nearly all-time highs yet, with 98% of companies reporting, GAAP earnings for the S&P 500 came in at $102/share during Q4, meaning that today’s 6th anniversary market is trading at 20.5X LTM profits. Needless to say, the last time outside of recession quarters that the broad market PE ratio was above 20X was during the fall of 2007.
Even that is cold comfort, however. At least back then when reported earnings peaked at $85 per share in Q2 2007 they had not yet been
- deformed by 75 quarters of ZIRP (Does he mean 75 months?) – a distortion that has subsequently ballooned earnings by $5-10 per share owing to artificially cheap interest carry costs on upwards of $3 trillion of S&P company debt.
- Nor had a concerted global central bank driven economic boom lifted materials, energy and industrial company earnings to wholly artificial heights.
- Nor had virtually zero cost funding—–extracted from the hides of savers and depositors—–artificially boosted bank and financial company earnings by triple digit billions.
Conclusion: there has been an enormous deterioration in the quality of reported earnings. On an apples-to-apples basis, today’s $102/share does not likely even equal the $85/share reported way back in the June 2007 quarter. Moreover, after adjusting for the impact of inflation it is not even close.