During an appearance on Fox Business recently we were indignantly asked by the Wall Street Journal’s chief Fed shill, Jon Hilsenramprath, whether we thought the market discounts the future—-the implication being that our dim outlook was out to lunch.
Our response was that of course it discounts the future—by about one day!
Here’s some living proof. The small and mid-cap Russell 2000 (RUT) kissed the 1600 level again this morning. That means it is up by 100% since the market last peaked in the fall of 2007, and by 85% in real terms if you deflate the index by the CPI.
Given that over that same 10-year period industrial production is up by only 1% and total labor hours by just 6%, you would have to conclude that it’s not where we’ve been, but one barnburner of a future, that the RUT is discounting.
Indeed, trading at 93X reported profits for the March 2018 LTM period, the RUT would appear to be a screaming billboard in behalf of MAGA. After all, the overwhelming share of the index consists of main street companies, which generate nearly 70% of their revenues from domestic sources.
Perhaps indicative of the implied Trumpian boom is the fact that the RUT dividend yield is only 1.29%. This means, of course, that “investors” are not paying for the current bird in their hand, but for some kind of magnificent raptor in the bush.
That’s the math of it, anyway. According to Birinyi Associates, the one year forward PE multiple on the RUT is just 25.73X—implying next year’s earnings will be about $62.20 per share.
Let’s see. The implied LTM (one year backward) reported earnings are just $17.20 per RUT share.