{"id":12931,"date":"2015-10-02T08:00:43","date_gmt":"2015-10-02T13:00:43","guid":{"rendered":"http:\/\/olduvai.ca\/?p=12931"},"modified":"2015-10-02T08:00:52","modified_gmt":"2015-10-02T13:00:52","slug":"whats-the-worst-that-could-happen","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=12931","title":{"rendered":"What’s The Worst That Could Happen?"},"content":{"rendered":"

What’s The Worst That Could Happen?<\/a><\/h3>\n

Via ConvergEx’s Nicholas Colas,<\/em><\/p>\n

\n
The 30 stocks of the Dow Jones Industrial Average currently trade for an average of 14.8x next year\u2019s consensus earnings.\u00a0 But… Everyone knows Wall Street analysts are always too optimistic,\u00a0so what if we just look at the lowest estimate for each company?<\/strong>\u00a0 That \u201cWorst Case scenario\u201d P\/E is 16.7x \u2013 not “Cheap”, but not crazy expensive either \u2013 and incorporates a decline in earnings from 2015 of 1.5%.<\/div>\n

As tempting as it is to say \u201cBuy stocks\u201d with this math, the truth is hazier.<\/strong>\u00a0In reality, markets currently discount this \u201cWorst case\u201d as the \u201cBase case\u201d.\u00a0 With the 10 year Treasury yielding 2.1%, that 16.7x multiple is where stocks should actually trade.<\/p>\n

The driver of this market pessimism sits at the top of the income statement \u2013 the Street\u2019s worst case revenue estimates call for a decline of 1.7% in 2016.\u00a0<\/strong>\u00a0Now, Q3 earnings season is unlikely to provide much comfort here; why should corporate managements go out on a guidance limb when their stocks are down on the year?\u00a0\u00a0All this points to further volatility in October, and with a bias to the downside.<\/strong><\/u><\/p><\/blockquote>\n

\n

Of all the words of tongue or pen, the dumbest are these: \u201cWhat\u2019s the worst that could happen?\u201d\u00a0<\/strong>\u00a0I imagine every stupid stunt ever uploaded to Youtube started life with that question.\u00a0 Skateboard off the roof of your parent\u2019s house into the pool\u2026\u00a0 Taunt the chimps at the zoo\u2026\u00a0\u00a0 Jump a bike over 17 of your friends\u2026\u00a0 That phrase is cursed.\u00a0 Even a movie of the same name, starring Martin Lawrence and Danny DeVito, only has a 10% approval rating on Rotten Tomatoes.<\/p>\n<\/div>\n

In financial markets, however, this is one of the most important questions you can ask.<\/strong>\u00a0 A few examples:<\/p>\n

\n
Every hedge fund uses some form of risk management\u00a0to understand the worst case scenario for their portfolio.<\/strong>\u00a0In general, the larger the firm and more complex the strategy, the more elaborate the analysis.<\/div>\n<\/blockquote>\n
\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n

 <\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"

What’s The Worst That Could Happen? Via ConvergEx’s Nicholas Colas, The 30 stocks of the Dow Jones Industrial Average currently trade for an average of 14.8x next year\u2019s consensus earnings.\u00a0 But… Everyone knows Wall Street analysts are always too optimistic,\u00a0so what if we just look at the lowest estimate for each company?\u00a0 That \u201cWorst Case […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[9524,29,4333,184,9257,216,7551,1849,376,9523,669,9525,2773,860,4318],"class_list":["post-12931","post","type-post","status-publish","format-standard","hentry","category-economics","tag-10-year-treasury","tag-apple","tag-crude","tag-crude-oil","tag-djia","tag-dow","tag-dow-jones-industrial-average","tag-financial-markets","tag-goldman-sachs","tag-nicholas-colas","tag-reality","tag-risk-management","tag-volatility","tag-wall-street","tag-zerohedge"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/12931","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=12931"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/12931\/revisions"}],"predecessor-version":[{"id":12932,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/12931\/revisions\/12932"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=12931"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=12931"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=12931"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}