The Market’s Only More Dangerous
DailyReckoning, July 22, 2017
The danger of a thundering crash is very great. The current blow-off top comes after nine years of even more central bank policy than Greenspan’s credit and housing bubble.
The Fed and its crew of traveling central banks around the world have gutted price discovery entirely. They have turned global financial markets into outright gambling dens of unchecked speculation.
Central bank policies of massive quantitative easing (QE) and zero interest rates (ZIRP) have been sugar-coated in rhetoric about “stimulus”, “accommodation” and guiding economies toward optimal levels of inflation and full-employment.
The truth of the matter is far different. The combined $15 trillion of central bank balance sheet expansion since 2007 amounts to monetary fraud of epic proportions.
The massive injection of fiat credit has drastically falsified prices in the debt and money markets. Through the channels of cap rates, carry trades and corporate financial engineering, the prices of equities and all other risk assets, have been falsified too.
Bond and stock prices are way too high, and that reality has infected the very foundations of the financial system. Today’s traders and robo-machines have lost all contact with the fundamentals of corporate performance, macroeconomic outlooks and the political risks of a Washington.
Traders today are just dancing – blindly. That’s why the Russell 2000 hit 1442 the other day, capitalizing the earnings of small and mid-cap domestic companies at 87.5 times.
That’s crazy in its own right. As measured by valued added output of the U.S. business sector, the main street economy – where most of these companies live — has expanded at a tepid 2.1% annual rate since 2002. By contrast, the RUT index has increased by 10% per annum since then.
At the same time, the level of speculation in the hyper-momentum tech stocks is even more stunning.
We are in the blow-off stage of the Fed’s third and greatest bubble of this century. The price-earnings ratio (PE) among the handful of big winners have soared.
In the case of the so-called “FAANGs + M” (Facebook, Apple, Amazon, Netflix, Google and Microsoft), the group’s weighted average PE multiple has increased by 50%. That’s caused the market cap of these six super-momentum stocks to soar from $1.7 trillion to $3.1 trillion during the period or by 82%.
The combined earnings of the group have grown by just 20%. 75% of this huge gain in market cap is attributable to multiple expansion, not operating performance. Even great companies do not escape drastic over-valuation during the blow-off stage of bubble peaks.
The market mindlessly melts-up because the Fed has destroyed all of the natural forces of financial discipline. Eight years of central bank money printing and intrusion have destroyed short-sellers and caused day-traders and robo-machines to be wired to buy every dip.
The talking heads wandering around Wall Street have come to the delusional belief that the bubble can live forever.
Only the daredevils and Wall Street dancing machines would dare buy the S&P 500 at 25 times PE, the Russell 2000 at 88 times PE, Amazon at 190 times PE.
Never has there been a better opportunity to get out of harm’s way, nor a clearer warning that a thundering crash is waiting just around the bend.
Здешние политиканы, «эксперты», подконтрольные ЦРУ СМ»И» нахваливают псевдодемократическую, якобы процветающую Америку.
Те, кто любит «наших американских (государственных) партнеров», «забывают» о грязных, злых уродах США. О таких, как коварный и крайне опасный мошенник, расист, лжец и неофашист Дональд Трамп. И о таких, как порочный Конгресс, кровавые милитаристы США, нацистские ФБР — ЦРУ, лживые американские СМ”И”…
Арнольд Локшин, политэмигрант из США