In last night’s update David Stockman laid out a fairly good bearish case. A case I tend to agree with. But not everyone believes that our predicament is that dire. In fact, most investors today will go out of their way in an attempt to shore up their bullish view. For instance……
Gutsy Wall Street analyst dares to debunk a sacred truism about the stock market
One the more important and widely-accepted truisms about the P/E ratio is that it has a tendency to revert to its average. But Wells Fargo’s John Silvia dares to dispute that almost sacred principle. “Contrary to popular commentary, the S&P 500 price-to-earnings ratio is not mean reverting,” Silvia said on Thursday.
In other words, “this time is different” crowd is making a comeback. I’ll tell you one thing. You wouldn’t find an article like this floating around just a few weeks ago when the market was pushing multi-year lows. Yet, a powerful rally/bounce since then is forcing all sorts of nonsense back to the surface again.
It is NEVER different.
Adjusted Shiller S&P P/E Ratio chart above is crystal clear. Today’s valuations are some of the highest in history. Only 1929 and 2000 blow tops were higher. And we are now on par with 2007 top.
But that’s not the worst of it. As Mr. Stockman kindly pointed out in the video below, GAAP S&P earnings are down 18% from about a year ago. And with no catalyst to turn our current economic predicament around, I expect these said earnings to accelerate down over the next few months.
In other words, today’s stock market is like an out of fuel jet fighter that just stalled after going nearly vertical. I’ll assure you of this, the final outcome won’t be very pleasant.
