Stockman Warns Of "Awful Price To Be Paid For One-Way Markets"
By Tyler Durden
Submitted by David Stockman via Contra Corner blog,
The boys and girls on Wall Street are now riding their bikes with no hands and eyes wide shut. That’s the only way to explain Friday’s lunatic buying spree in response to another jobs report that proves exactly nothing about an allegedly resurgent economy.
When the S&P 500 first hit 2130 back in May 2015, reported LTM earnings were $99.25 per share, and that was already down 6.4% from the cyclical high of $106 per share in September 2014. Thus, stocks were being valued at a nosebleed 21.5X in the face of falling earnings.
During the four quarters since then, reported LTM earnings have slumped by a further 12.3% to $87 per share. So that brings the “cap rate” to 24.5X earnings that have shrunk by 18% over the last six quarters. Wee!
You have to use the parenthetical because the casino is not capitalizing anything rational. It’s just drifting higher in daredevil fashion until something big and nasty stops it.
That something would be global deflation and US recession. Both are racing down the pike at accelerating speed.
Needless to say, when these lethal economic forces finally hit home, the puppy pile-up on Wall Street is going to be one bloody mess. But that’s the price you pay when you have destroyed honest price discovery entirely, and have transformed the money and capital markets into robo-machine driven venues of rank speculation.
Janet Yellen and the other 100 clowns who run the world’s central banks, of course, have no clue as to the financial doomsday machine they have enabled. Indeed, they apparently think efficient pricing and allocation of capital doesn’t matter.
After all, their entire modus operandi is to peg the price of money, bonds and the yield curve sharply below market-clearing levels—–so that households and business will borrow and spend more than otherwise.
Likewise, they aim to goose stock prices to ever higher levels. That’s so the top 10% and the top 1%, who own the preponderant share of equities, will feel the wealth(effects) and then spend-up and invest-up a storm.
But the economic gods created market-based price discovery for a reason. It was to insure that in the great arena of financial market supply and demand, the forces of fear and greed would contend on a level playing field. Short-sellers and contrarians heading south were to intercept the lemmings of greed heading north before they reached the edge of the cliff.
Now there is nothing but cliff. Central bankers have euthanized the short-sellers and empowered the lemmings of greed with free money to fund every manner of speculation while gifting them with cheap downside hedging insurance.
There is an awful price to be paid for one-way markets, however. The latter never correct; they crash.
And the suddenness, unexpectedness, and violence of these episodic crashes slam the main street economy with gale force. That confidence shock, in turn, cancels out the gains that the resilient forces of capitalism have eked out since the previous crash, thereby causing trend rates of gain in …read more
Source: Stockman Warns Of "Awful Price To Be Paid For One-Way Markets"
