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2019-01-03 10:19 by Karl Denninger
in Market Musings , 266 references
[Comments enabled]  

Big surprise eh?

Meh.

Cook is a sandbagging sack of crap.  He knew damn well two months+ earlier that they were going to miss.  A 10% revenue miss is huge; that doesn't show up overnight.

The real issue is the ISM, although the market has sniffed this out.  The entirety of the so-called "Trump" gains were fraud.

Trump goosed the world with his "tax cuts" but he debt financed it, just like you can with your credit card -- for a while.  But then the bill comes due, and you have a big problem because not only must you make the payments you must also keep buying the necessities.  Thus, the pendulum swings back.

Tomorrow we get the jobs report.  I've noted some interesting changes in it over the last couple of months and warned that one month doesn't make a trend, two gets your attention but three is trouble.  Job numbers also lag.

Oh, by the way, this isn't mostly "trade war."  It's mostly debt-based fraud, but you can bet the slimebag media won't cover it that way, and now you have Pelosuckmyhairysack launching a full-on debt fusillade demand, which will go exactly nowhere in the Senate -- but which is, into the maw of what's going on right now, flat-out insane.

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2018-12-27 06:53 by Karl Denninger
in Market Musings , 1451 references
[Comments enabled]  

It has to suck to be one of these guys.

Due to mechanical requirements in their asset allocation there has been about $60 billion outstanding in "required" buy-ins (really shifts between asset classes) toward stocks before December 31st.

I'm a bit unclear on whether its trade date or trade settlement date that matters here; I'd assume settlement, but I could be wrong.  As such 12/27, is likely the last day for such to take place.

Thus the really nice bear-market rally.....

Here's the conundrum -- historically speaking when you first realize you're in a bear market (that is, 20% down from the top) you're not near the bottom -- you're only half-way there!  That is, historically-speaking "buying the 20% decline" is dumb because you likely are buying 20% above the final bottom price.

It's even more-stupid if you buy into a sharp 5% spike higher.

Now buying into the decline on a dollar-cost-average basis as the selloff deepens beyond that initial 20% has historically worked out well, except once -- in the 1930s, when it didn't work at all for a couple of decades.

Pension fund managers don't get to choose when they get up against a rebalancing requirement that comes yearly.  They have to make the changes -- by law.

I bet many of them would rather remain in bonds for the time being; while they may not make a lot on the interest at least they're not going to lose 20% or more of their capital.

But that's not a choice for them.

Will buying into this ramp work for you?  We'll see.  Historically speaking the period from Christmas through the first five days of the New Year has proved to be a good period for the market with the caveat that you have to be very careful about sticking around, as there have been years that in the second week and beyond in January everything went straight down the toilet.

Be careful thinking this is all over; back in 2008 a lot of people thought that too.

They got slaughtered.

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2018-12-24 09:58 by Karl Denninger
in Market Musings , 274 references
[Comments enabled]  

smiley

From this morning: What's the correct multiple assuming zero EPS growth?  14.5?

Uh, no.

It's in fact something much closer to zero.

Why?

Because the point of buying stock is that you're an owner of the company and expect something in return.  That return would be the dividend cash flow only, in a zero-earnings-growth world.

So what's the S&P 500's dividend cash flow right now?  About 1.8%.

Now what's a reasonable forward discount on that ex the 6.2% monetary inflation the government ran last year, projected forward?

It's negative, as the dividend cash flow is less than the monetary inflation amount.

Why has the market soared while the Fed and Federal Government have been running this sort of fiscal deficit, and why did it skyrocket when Trump's "tax cuts" promises and then legislation came?

Because The Fed was fueling an intentional asset price bubble along with the Federal Government, and through buybacks with borrowed money the EPS rises mechanically.  This is a chimera because said debt has to be repaid and you must continue to take more debt forever in order to continue increasing EPS via this path.  That can't happen since borrowing an infinite amount of money will bankrupt anyone who tries it.

So now that's ended and the lie has been exposed, leaving this question:

What's a "proper" S&P 500 price under the scenario where EPS growth goes to zero while fiscal monetary inflation remains above the dividend return rate?

Answer: ZERO.

Hairy Hissmass.

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