With each passing day the untold damage to both capitalist prosperity and democratic governance that has been inflicted by the nation’s rogue central bank becomes all the more obvious. And that starts with the fact that the stock market at 3510 on the S&P 500 is purely an excrescence of the Fed’s massive liquidity injections into the Wall Street casino, and is therefore an implosion waiting to happen.
After all, the current nosebleed levels of the stock averages have nothing to do with earnings. With most companies having now reported for Q3, in fact, LTM reported earnings for the S&P 500 clocked in at just $97.68 per share. That’s down 30% from peak earnings of $139.47 per share for the December 2019 LTM period and implies a PE multiple of 35.9X.
But as they say on late night TV, there’s more. Even the perennially optimistic lot on the Wall Street sell side is now projecting that by year-end the December 2020 LTM earning figure will post at just $91.80 per share, thereby valuing expected full year 2020 earnings at a preposterous 38.2X.
Of course, by the lights of Wall Street, none of this matters. That’s because, apparently, the Covid-pandemic, Lockdown Nation, 60 million unemployment claims, hundreds of billions of new household and business debt delinquencies and defaults, a $3.3 trillion string of coast-to-coast soup lines desperately enacted by Washington sight unseen and many more such indicators of distress didn’t actually happen.
That is to say, all of the above is to be viewed as a one-time aberration that will soon be in the rear-view mirror and, instead, investors are instructed to look through the disasters of 2020 to normalization thereafter. For instance, S&P 500 earnings for December 2021 are projected on an LTM basis at $135.13 per share, implying valuation sanity will return in due course.
Not exactly. That 14-months forward figure will surely shrink as the date approaches, as sell-side projections always do. But even as the figure now stands it would still be 3% below the December 2019 level and nevertheless represent a PE multiple of 26.0X today’s stock prices.
Stated differently, to embrace today’s S&P 500 index you have to believe that next year’s earnings ($135.13) will rebound from the expected December 2020 ($91.80) level by 47%!
And you have to so believe in a context in which:
- The defeated Donald Trump and his tens of millions of Red Hat followers are running a stolen election campaign that will make the Dems RussiaGate re-litigation of the 2016 outcome look like a walk in the park;
- Sleepy Joe is continuously hitting a brick wall of Senate filibusters against any and all of his legislative program because a goodly portion of Republican Senators are enthrall to the Red Hat uprisings back home;
- Through executive orders and administrative means the actual powers in charge—the Kamala Harris/Progressive Left Regency—will have unleashed the running dogs of the Virus Patrol, thereby tipping the “un-stimulated” economy into a double-dip recession in 2021;
- The +/- $3 trillion Federal deficits will come under attack from the out-of-power GOP, and even the knuckleheads in the Eccles Building will not be able to find excuses to monetize one quarter of a trillion dollars ($250 B) each and every month with no end in sight;
- In combination, the partisan political maelstrom across Flyover America, gridlock in Washington, wavering among the money-printers in the Eccles Building, and swelling supply of unwanted government paper will trigger a reincarnation of the bond vigilantes on Wall Street, causing leveraged speculators to sell the bond and send the hideously over-valued bond market into a death spiral.
At that point, as they say, it’s Katie-bar-the-door. The stampede from the casino will be epic and the putative 47% increase in 2021 earnings will be deleted with alacrity from the projections of any Wall Street sell-side firm still standing.
Of course, we think the punters and Robin Hooders out there buying the dip deserve no mercy. The very idea that under the present regime of sheer fiscal incontinence that gridlock is good is beyond lame. Do these knuckleheads really think that $3 trillion deficits can be monetized by the Fed indefinitely and with impunity?
Yet that is the presumption animating this week’s 7% gain on the S&P 500 and nearly 10% rise of the NASDAQ 100, which made for the best election week performance since 1932 (spoiler alert, the stock market crashed again shortly thereafter).
Actually, the alternative assumption—-that the US economy will come roaring back, causing the Federal deficit to shrink all on its own—is even more preposterous. That’s just nonsense from Larry Kudlow’s magic spreadsheet, which will soon be heading into the White House paper-shredder.
The fact is, no $2 trillion Everything Bailout 5.0 is in the cards, meaning that as the changing of the guard in Washington stumbles through weeks of red hot partisan contretemps, recounts and litigation, the already debt-entombed US economy will be on its own two wobbly feet.
Nor can the wobble be gainsaid. The spring rebound of the US economy is now clearly flat-lining, and that’s even before the newest round of Covid-Hysteria and Blue State shutdowns have cascaded through the everyday economy.
There is ample evidence for that conclusion in the slew of high-frequency data that is now available from on-line and real time sources.
For instance, Open Table’s index of seated diners for the US as a whole was down 54% from last year during the week ending on October 31. As is evident from the chart, the initial deep plunge during April had recovered to about 50% by mid-August, but it has stagnated at that level ever since—and that’s before the cold season and sharply curtailed indoor dining rules take a further toll.
Open Table: Year/Year Change in U.S. Seated Diners
Likewise, the peak summer travel/vacation season has come and gone, causing hotel occupancy to once again head south.
In fact, as of the week ending on October 31, U. S. hotel occupancy was still at a disastrous 44.4%, which was the initial rebound levels achieved by July 4th and which has flat-lined every since. By way of comparison, at the end of October last year, occupancy levels were nearly 70%.
Indeed, the above chart is a useful corrective to the Jobs Friday ballyhoo again today, in which 638,000 jobs were purportedly added during October, including 34,000 in the hotels and accommodations sector. The skunk in the woodpile, of course, is that the seasonal factors are now turning negative, yet the 1.435 million job level reported for October was still 31% below its seasonally adjusted February level.
Again, the flat-lining pattern is more than evident. After plunging by 49% thru May, hotel industry employment rebounded strongly in June, but has just been creeping upward slowly ever since.
Moreover, when it comes to the slight upward blip in September and October emitted by the BLS’ goal-seeked models versus industry occupancy data showing a downward hook in the last four weeks, we’ll go with the latter. It is only a matter of time and BLS revisions until the BLS chart below lines up with the industry data above.
And that’s even before Sleepy Joe unleashes the “heroic” Dr. Fauci to get his revenge against the Donald by telling people to stay home not only for Thanksgiving, but Christmas, New Years and Groundhog Day, too.
As we frequently observe, the far more useful data in the monthly BLS jobs report is the index of hours worked because it compensates for the fact that the work week has been shrinking for decades and that the first thing to comeback in an upturn is part-time workers and additional hours, not full-time head counts.
In that context, the hours data below for the manufacturing sector is pretty dispositive. During the initial April lockdown, total hours worked plunged by 19.4% from their pre-Covid February level. For the sake of reference, that also happened to be 40% below the level first recorded in, well, January 1948!
So, yes, that was some kind of deep hole, and there was a spritely rebound in May and June. But here is what has happened since—the rebound has rapidly run out of steam.
Aggregate Manufacturing Hours, Change from Prior Month:
- April: –19.4%;
- May: +4.9%;
- June: +5.9%;
- July: +2.5%;
- August: +1.0%;
- September: +0.3%;
- October: +0.6%
Index of Manufacturing Hours
This is even more evident in the energy, mining and logging sector, which has been the star jobs generator since the shale boom took off 15 years ago.
But no more. Between January and the July bottom, total hours worked plunged by 19%, but then rebounded by just 2.3% as of September. The news flash in this morning’s BLS report, however, is that aggregate hours in this high pay sector (annual wage equivalent of @$65,000) have turned south again.
And that’s before Sleepy Joe’s recently closeted anti-frackers come out of hiding after January 20.
Index of Aggregate Hours In the Energy, Mining and Logging Sector
In short, Wall Street is not even giving a passing nod to the dark storm clouds hovering over the nation owing to another de-legitimized election, an impending gridlocked government and a fiscal doomsday machine that is being financed only be dint of the Fed’s reckless monetization of virtually every dime of the massive flow of red ink gushing from the US Treasury.
For want of doubt on the latter, just consider that on November 4, the public debt weighed in at $27.20 trillion compared to just $22.97 trillion on the same date last year. That is, the Uncle Sam’s debt has grown by $4.2 trillion in one year’s time, a feat that took the nation’s first 204 years through Q1 1993 to accomplish in the first place.
And now, a double-dip recession is virtually guaranteed, meaning that a further swollen tide of red ink will inundate the incoming Biden Administration and the Federal Reserve with malice aforethought.
We don’t think that spend, borrow and print is going to save the day because the Donald has pretty much used up all the dry powder.
So when it comes to praising the prospect of gridlock and feasting on the dip, we’ll take the unders. All day.