David Stockman: “This Time Is Completely Different…But Not In A Good Way”

Thursday, February 22, 2018
By Paul Martin

by David Stockman via Contra Corner blog,
Thu, 02/22/2018

If you don’t think the stock market is a giant accident waiting to happen, just consider the two most crucial developments—-soaring stocks and soaring deficits— since November 7, 2016.

First, on the lunacy side of the equation, the S&P 500 was up 35% at its 2873 peak on January 26, and now the dip-buyers, chart-readers and robo-machines are trying mightily to retest that level after the short-lived 10% correction at the turn of the month.

But here’s the thing. The pre-Trump market at 2130 on the S&P 500 was already trading at a nosebleed 22.4X LTM earnings of $94.55 as of Q4 2016. Consistent with the pig-through-the-python profits mini-cycle of the last four years, which flows from the parallel commodity/industrial/trade cycle, LTM earnings for Q4 2017 have now come in at $106.84 per share.

Down on Wall Street they are calling this gain a 13% Y/Y earnings rebound that justifies rising stock prices, and even buying the dip at current levels. To the contrary, we think the whole earnings growth narrative is nothing more than mullet bait; it snatches a one-year delta from the underlying trend and macro-context and thereby generates an utterly misleading conclusion.

The truth is, S&P 500 earnings are now back to where they were 39 months ago when they posted at $105.96 for the September 2014 LTM period. We’d call an >$0.88 gain over more than three years a rounding error, not a sign of resurgent profits.

The Rest…HERE

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