Some Folks At The Fed Are Lost——No Juice To The Macros, Part 1
Yesterday we demonstrated that stock market valuations are not merely “on the high side” as Janet Yellen averred last week. Instead, they are positively in the nose-bleed section of history.
You don’t get the Russell 2000 trading at 90X honest-to-goodness GAAP earnings or 125 biotechs with aggregate LTM losses of $10 billion sporting a combined market cap of $280 billion unless you are deep into bubble land. In fact, the chart on the median PE multiple for all NYSE stocks bears repeating.
Recall this graph is based on trailing GAAP earnings for all companies with positive income. But that was for the LTM period ending in June 2014. Since then the market is up by 7%, yet reported earnings have basically flat-lined. S&P 500 earnings for the June 2014 LTM period, for example, were $103 per share——-a level that has now dropped to $102 per share for the December LTM period.
In short, the median NYSE valuation multiple is now at upwards of 22X—a level far above even the dotcom and housing bubble peaks. It is no wonder, therefore, that even a certified Cool-Aid drinker like St Louis Fed head, James Bullard, has now confessed that he fears a “violent” Wall Street sell-off when the Fed finally ends an 80 month streak of ZIRP sometime this fall.
So what are they waiting for? Actually, this morning’s
Wall Street Journal expressed it about as plaintively as it comes. In a word, the monetary politburo is waiting for zero interest rates, massive debt monetization and its wealth effects promises and “puts” to goose the macros:
…click on the above link to read the rest of the article…
