Discounting, Or Never Learning?

The hedge fund industry is not quite dead yet, meaning that it can still cause a great deal of disruption before it expires. It is here where things like rehypothecation and the bastardization of prime brokerage functions were perfected, such that we might use that term in this manner. Despite so much outward attention paid…


The Market Is Not The Economy, But Earnings Are (Closer)

My colleague Joe Calhoun likes to remind me that markets and fundamentals only sound like they should be related, an observation that is a correct one on so many different levels. Stock prices, in general, and GDP growth may seem to warrant some kind of expected correlation, but it has proven quite tenuous at times…


Bi-Weekly Economic Review

Economic Reports Scorecard Well it’s time to get back in the habit of doing this every two weeks. The schedule was interrupted over the holidays and then again by my annual outlook piece.  The economic data released over the last two weeks was not particularly inspiring, not that hard data is what has been egging…


All Kinds Of Stock Market Irregularities

A great many asset classes have been moving almost perfectly sideways for months now. That is unusual by any standard, but more so given the circumstances of late 2016. This might be indicative of doubts, some of which are being reinforced by weakness that might be characterized as “unexpected” but really no longer is. Today’s…


Earnings And Valuations Update; Still Nowhere Near Good

At the end of July with a majority of the 500 companies included in the S&P 500 index having reported their earnings, the tabulated EPS (as reported) was figured around $24.09. That was already down sharply from just a month earlier when compared to analysts’ expectations from just before Q2 earnings season started. In late…

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The ‘Wealth Effect’ Didn’t Die, It Was Never A Valid Concept No Matter How High Stocks Go

Over the years, the “wealth effect” has been taken as a core component of monetary policy. Central bankers will not admit it, of course, but particularly stock prices are a central element of their strategy. It almost has to be that way given that the modern version of econometrics applies rational expectations theory as a…


Incongruent Logic To Balance Risks Leads To Incongruent Markets With Nothing But Risk

In February 2013, Federal Reserve Board Governor Jeremy Stein gave a speech at a research symposium produced by the St. Louis branch of the Federal Reserve that shocked quite a lot of people. QE3 and QE4 were still quite new, but here was a Board member talking just months after their start of “reach for…


S&P 500 EPS Drops $2 In The Past Month; Index At New High

Earlier in April, analysts were projecting $26.69 in as-reported second quarter earnings for the S&P 500. By the week of June 22, just prior to the start of Q2 earnings season, that estimate had only declined slightly to $26.38. For the week of July 21, just a month later, with about one-third of companies reporting…

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Bring Back the ‘Fed Model’ For Stocks? Nope

A few days ago I examined the relationship between the stock market PE and CPI inflation. The reason was the sudden renewed emphasis on low inflation in the context of trying to justify increasingly outlying earnings multiples in stocks. Earnings fell sharply in 2015, but prices really didn’t; there was, at most, only more volatility…

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Valuation Fallacies

Everyone knows about lies, damned lies, and statistics. The quote has been attached to Mark Twain who apparently attributed to British Prime Minister Benjamin Disraeli. It remains among popular clichés because there is universal truth to it, a sort of caveat emptor lying in the background whenever one consumes an argument. Nowhere is that more…