Equities Are a Bubble Waiting to Be Pricked - BNP 34 comments
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Ahh the paradox: a market still way off its highs but at the top of a massive run from March 9 lows against the backdrop of a still-lousy worldwide economy fringed by tiny glimmers of improving fundamentals. Yipes. Add to that my bond-trading officemate's feeling that the bond market is teetering on a major technical precipice where it either has to settle back to lower rates or break out (sell off) to >3% on the 10-yr.
BNP credit analysts decided to throw in their two cents, saying that equities are expensive, investment-grade corporate debt is cheap, and equity analysts are out of their minds. I certainly agree with the last part of that statement, but that's nothing new. The main thrust of their argument is that on reported earnings, which include writeoffs and charges, the market is at 30x PE or a earnings yield of 3%. Therefore there is no equity risk premium vs the risk free rate.
They also point out that Blackstone graciously marked the 2007 top by selling grossly overpriced equity to the public. I remember sitting here that day and discussing with Mr. bond-trader that the only reason those guys would do a PO was if they needed some suckers to help them monetize the then-raging private equity bubble. And we all know that in the Official Wall Street Dictionary, one finds the following definition:
Main Street -noun
2. The main thoroughfare in a town, esp. the business district
3. See #1
So now we have Goldman doing a secondary. Has a familiar ring to it...
My opinion? There are still plenty of bargains out there for the longer-term investor (a redundant phrase really). Nearer term? It wouldn't surprise me to see a "noticeable" pullback.
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This article has 34 comments:
On Apr 24 12:38 PM Cetin Hakimoglu wrote:
> Wait a minute..did the bubble already burst last year? How does the > market surging 27% make it another bubble when PE ratios are still > so low and fundamentals seem to be improving?
On Apr 24 12:38 PM Cetin Hakimoglu wrote:
> Wait a minute..did the bubble already burst last year? How does the
> market surging 27% make it another bubble when PE ratios are still
> so low and fundamentals seem to be improving?
I think BNP is right on equities, but too optimistic on investment grade debt. Most of these companies will be downgraded within the year. And the ratings differential has been shown to be a joke.
And please don't ban Cetin - I did some analysis, and it seems I get most of my "thumbs up" from responding to him (risking being banned myself, by saying what everyone else was thinking). That, and foaming at the mouth about Goldman Sachs (for which I make NO apologies).
Operating: 59.20 / share
As reported: 28.51 / share
Based on a current S&P Index of 870, that's a P/E of 14.6 based on OE. If you look at as reported, it's a whopping 30.5x.
The P/OE is about 20% higher than a P/E of 12, FYI.
Cetin, my problem with you is that you only cheerlead and never substantiate your claims with facts. Or if you do have facts they are wrong. I'd love to read a coherent argument about why the S&P is going to roar back to 1,200 in the next year. However all you feed us is the same platitudes that got us into this mess. Such as, Don't question the wisdom of handing out a mortgage to any schmo or bailing out any industry that needs to consolidate to survive - look at the market response - it's working out fine!
Do I think we are going to get through? Yes. Will the economy recover? Yes, eventually. Just not soon. Certainly no one can argue that experiencing a 50% decline wasn't a lot of pain. But the facts are, at least for U.S.-based companies, that the fundamental structure of our economy must be completely re-worked.
It is Polyannic to think that just continuing to buy in is the best way to make money in a market that is quite frankly extremely risky right now.
On Apr 24 01:41 PM Cetin Hakimoglu wrote:
> Google it. The forward PE on the S&P is around 12
Does anyone thinks seriously that the US equity market is the beginning of a cecular bull market? and if this is a bear market rally, then why play "catch the top" after a 26% gain? it is a losing proposition.
On Apr 24 03:15 PM mrmillergd wrote:
> I did google it. 2009 earnings as of 4/22 were:
>
> Operating: 59.20 / share
> As reported: 28.51 / share
>
> Based on a current S&P Index of 870, that's a P/E of 14.6 based
> on OE. If you look at as reported, it's a whopping 30.5x.
>
> The P/OE is about 20% higher than a P/E of 12, FYI.
>
> Cetin, my problem with you is that you only cheerlead and never substantiate
> your claims with facts. Or if you do have facts they are wrong. I'd
> love to read a coherent argument about why the S&P is going to
> roar back to 1,200 in the next year. However all you feed us is the
> same platitudes that got us into this mess. Such as, Don't question
> the wisdom of handing out a mortgage to any schmo or bailing out
> any industry that needs to consolidate to survive - look at the market
> response - it's working out fine!
>
> Do I think we are going to get through? Yes. Will the economy recover?
> Yes, eventually. Just not soon. Certainly no one can argue that experiencing
> a 50% decline wasn't a lot of pain. But the facts are, at least for
> U.S.-based companies, that the fundamental structure of our economy
> must be completely re-worked.
>
> It is Polyannic to think that just continuing to buy in is the best
> way to make money in a market that is quite frankly extremely risky
> right now.
>
> On Apr 24 01:41 PM Cetin Hakimoglu wrote:
they have big problems.
On Apr 24 04:06 PM TheFounder wrote:
> Why play the casino/guessing game of bull vs. bear market in the
> US when markets like Brazil and China are a much safer bet based
> on future economical growth.
>
> Does anyone thinks seriously that the US equity market is the beginning
> of a cecular bull market? and if this is a bear market rally, then
> why play "catch the top" after a 26% gain? it is a losing proposition.
On Apr 24 12:45 PM herbert hoover wrote:
> What PE ratios are you looking at? I see about a half dozen S&P
> stocks selling at 30 and 40 times forward earnings. That's insane.
>
On Apr 24 01:20 PM PassingBy55 wrote:
> This guy needs to be banned. End of story. I take no issue with
> optimism but spamming is not cool.
On Apr 24 12:38 PM Cetin Hakimoglu wrote:
> Wait a minute..did the bubble already burst last year? How does the
> market surging 27% make it another bubble when PE ratios are still
> so low and fundamentals seem to be improving?
On Apr 24 04:44 PM Nathaniel C wrote:
> I think the market will continue to go up until all of the major
> banks raise their additional capital (pump and dump). Once the banks
> get their money the market will probably sell off.
On Apr 24 03:40 PM schlumpf wrote:
> I know nobody like it ( I also dont ), but Cetin was right the last
> 2 month.
Still, things might go better for him if he 1) didn't keep randomly inserting his blog's URL into soooooo many of his postings, 2) making blanket pronouncements without much (any?) support, and 3) occasionally claiming to be the third wisest person on the planet. Usually the truly wise are those who feel the least compulsion to proclaim their wisdom to the world on a regular basis.
On a site probably frequented by a more than its share of self-made millionaires, top-notch traders, Ivy League graduates, Mensa members and leaders in their respective professions, such claims of quasi-supernatural wisdom are not likely to be well received (as a current rating *in excess of -4000* might suggest to a poster).
Also, with regard to SA comments, one should remain ever mindful of the vital distinction between quantity and quality.
True, he is a a troller. BUT, he normally only throws one comment per article. He is not out there responding to every single comment as this article demonstrates. There must be at least 10 different comments referring to Cetin and he hasn't responded to any of them. He is already on to the next article telling people to buy AMZN at 75x earnings.
And his posts are short and easily ignorable if you so desire. But they are so outlandish that I almost always at least chuckle, if not laugh.
I also find Seeking Alpha does a pretty damn good job of monitoring the boards. I feel if things really were to get obnoxious they would take swift action.
Rock on Cetin!
MM
Nobody will allow diletants to play this game, the more investors go short, the more they will cover in panic.
This is big boys games.
I m in cash now, was toasted last week ( short ) and in march long BAC, C and AIG
"...and fundamentals seem to be improving?"
Emphasis on "seem"..........the US financial establishment and its controlled media, can make anything "seem" to happen, as it turns out..........
Politically speaking, we are in a mess.
So, bottom line, sure, something could come and rescue the American market[economy]. I don't see anything but storm clouds gathering, and we need to go thru this. I hope we will come out stronger on the other side.
BUT, our investing, buying, living, and savings habits will be all different.
I hope China can survive our lack of buying their cheap stuff.
Markets are headed south, and I think it is more than a bubble, it is a re-alignment of a wonderful country that may just survive [in a new form] in spite of us.
Capt. Brian
Ok, before you start slaying me listen to what I have to say. I used to be an investor and used to analysze all the hype and the doom and gloom and then developed my own perspective (either bullish or bearish) and invested in equities. My track record when I did this was poor. And then I went and studied all there is to study about technicals and started following the charts. My results improved dramatically. At the end of the day charts tell us what investors are doing and what they are likely to do and NOT WHAT THEY ARE TALKING ABOUT. You all know the famous marketing paradigm -- if you present to people the idea of a cool product they all say they will buy it if you make them but when you do make them they are mysteriously absent! Saying is not the same as doing!
Now, let us talk about the markets re-testing the March lows which many in the previous posts seem to think is going to happen. What do the charts say about it? Here is what I see.
1. NASDAQ index has now shown weekly buy signals 5 weeks in a row.
2. DOW has not developed bullish signals on daily charts 28 days and kept the momentum up without a single breach. In other words, the technicals held up even when the Dow pulled back like the 290 plus point drop the other day. On a weekly chart, however, the Dow is still suspect and vulnerable to a pullback. But given NASDAQ's strength I find it unlikely that the pullback can be of a large magnitude. That is because for the markets to pullback to the march lows the NASDAQ must completely break down. This is what you see historically when you analyze pullback. "THE DOW AND THE NASDAQ MUST BOTH BREAK DOWN FOR THE MARKETS TO RETEST LOWS". When I go and look back at corrections at previous bull markets I have not seen such a divergence between these two markets. My conclusion is that it is not possible for a market breakdown to happen to March lows because of the strength in NASDAQ.
3. Major financial institutions (Goldman, MS, JPM) are all showing strength in their weekly charts. BAC and C are still bullish on their daily charts. If after the stress test results there is no breakdown in banks then the market pullback to March lows will become even more unlikely. Again, an analysis of past bear-bull markets show that financials must break down for the markets to test their lows. This makes the May 4th date all that much more important.
4. Tech stocks are incredibly strong on daily and weekly charts. Several new stocks from several new non-tech industries have now registered bullish bias on their weekly charts.
What I am saying is charts are showing that a pullback to March lows is extemely unlikely. So at least for the near future (say till the next Q earnings season) there is likely no major pullback in the markets. Say what you will I follow the adage "The trend if your friend till the bend at the end and I don't see no bend!"
On Apr 25 01:24 PM InvestBaboo wrote:
> You are all correct. Cetin has called the market bottoms before and
> has been wrong but this time so far he has got it right. Like someone
> said if you keep doing it you will be right sometime!
>
> Ok, before you start slaying me listen to what I have to say. I used
> to be an investor and used to analysze all the hype and the doom
> and gloom and then developed my own perspective (either bullish or
> bearish) and invested in equities. My track record when I did this
> was poor. And then I went and studied all there is to study about
> technicals and started following the charts. My results improved
> dramatically. At the end of the day charts tell us what investors
> are doing and what they are likely to do and NOT WHAT THEY ARE TALKING
> ABOUT. You all know the famous marketing paradigm -- if you present
> to people the idea of a cool product they all say they will buy it
> if you make them but when you do make them they are mysteriously
> absent! Saying is not the same as doing!
>
> Now, let us talk about the markets re-testing the March lows which
> many in the previous posts seem to think is going to happen. What
> do the charts say about it? Here is what I see.
>
> 1. NASDAQ index has now shown weekly buy signals 5 weeks in a row.
>
>
> 2. DOW has not developed bullish signals on daily charts 28 days
> and kept the momentum up without a single breach. In other words,
> the technicals held up even when the Dow pulled back like the 290
> plus point drop the other day. On a weekly chart, however, the Dow
> is still suspect and vulnerable to a pullback. But given NASDAQ's
> strength I find it unlikely that the pullback can be of a large magnitude.
> That is because for the markets to pullback to the march lows the
> NASDAQ must completely break down. This is what you see historically
> when you analyze pullback. "THE DOW AND THE NASDAQ MUST BOTH BREAK
> DOWN FOR THE MARKETS TO RETEST LOWS". When I go and look back at
> corrections at previous bull markets I have not seen such a divergence
> between these two markets. My conclusion is that it is not possible
> for a market breakdown to happen to March lows because of the strength
> in NASDAQ.
>
> 3. Major financial institutions (Goldman, MS, JPM) are all showing
> strength in their weekly charts. BAC and C are still bullish on their
> daily charts. If after the stress test results there is no breakdown
> in banks then the market pullback to March lows will become even
> more unlikely. Again, an analysis of past bear-bull markets show
> that financials must break down for the markets to test their lows.
> This makes the May 4th date all that much more important.
>
> 4. Tech stocks are incredibly strong on daily and weekly charts.
> Several new stocks from several new non-tech industries have now
> registered bullish bias on their weekly charts.
>
> What I am saying is charts are showing that a pullback to March lows
> is extemely unlikely. So at least for the near future (say till the
> next Q earnings season) there is likely no major pullback in the
> markets. Say what you will I follow the adage "The trend if your
> friend till the bend at the end and I don't see no bend!"
zerohedge.blogspot.com...
On Apr 25 02:05 AM mikebrah wrote:
> I give Cetin two thumbs up. Hear me out before giving me a negative
> rating.
>
> True, he is a a troller. BUT, he normally only throws one comment
> per article. He is not out there responding to every single comment
> as this article demonstrates. There must be at least 10 different
> comments referring to Cetin and he hasn't responded to any of them.
> He is already on to the next article telling people to buy AMZN at
> 75x earnings.
>
> And his posts are short and easily ignorable if you so desire. But
> they are so outlandish that I almost always at least chuckle, if
> not laugh.
>
> I also find Seeking Alpha does a pretty damn good job of monitoring
> the boards. I feel if things really were to get obnoxious they would
> take swift action.
>
> Rock on Cetin!
>
> MM
But Nathaniel, it could be a while before they're all done raising capital, no?
On Apr 24 04:44 PM Nathaniel C wrote:
> I think the market will continue to go up until all of the major
> banks raise their additional capital (pump and dump). Once the banks
> get their money the market will probably sell off.
Past is never exactly repeared as much as our brains would like it to be.
Clearly, there a no reasons why the market is going up. So, it would be foolhardy to platonify the reasons it might go down.
On Apr 25 01:24 PM InvestBaboo wrote:
> You are all correct. Cetin has called the market bottoms before and
> has been wrong but this time so far he has got it right. Like someone
> said if you keep doing it you will be right sometime!
>
> Ok, before you start slaying me listen to what I have to say. I used
> to be an investor and used to analysze all the hype and the doom
> and gloom and then developed my own perspective (either bullish or
> bearish) and invested in equities. My track record when I did this
> was poor. And then I went and studied all there is to study about
> technicals and started following the charts. My results improved
> dramatically. At the end of the day charts tell us what investors
> are doing and what they are likely to do and NOT WHAT THEY ARE TALKING
> ABOUT. You all know the famous marketing paradigm -- if you present
> to people the idea of a cool product they all say they will buy it
> if you make them but when you do make them they are mysteriously
> absent! Saying is not the same as doing!
>
> Now, let us talk about the markets re-testing the March lows which
> many in the previous posts seem to think is going to happen. What
> do the charts say about it? Here is what I see.
>
> 1. NASDAQ index has now shown weekly buy signals 5 weeks in a row.
>
>
> 2. DOW has not developed bullish signals on daily charts 28 days
> and kept the momentum up without a single breach. In other words,
> the technicals held up even when the Dow pulled back like the 290
> plus point drop the other day. On a weekly chart, however, the Dow
> is still suspect and vulnerable to a pullback. But given NASDAQ's
> strength I find it unlikely that the pullback can be of a large magnitude.
> That is because for the markets to pullback to the march lows the
> NASDAQ must completely break down. This is what you see historically
> when you analyze pullback. "THE DOW AND THE NASDAQ MUST BOTH BREAK
> DOWN FOR THE MARKETS TO RETEST LOWS". When I go and look back at
> corrections at previous bull markets I have not seen such a divergence
> between these two markets. My conclusion is that it is not possible
> for a market breakdown to happen to March lows because of the strength
> in NASDAQ.
>
> 3. Major financial institutions (Goldman, MS, JPM) are all showing
> strength in their weekly charts. BAC and C are still bullish on their
> daily charts. If after the stress test results there is no breakdown
> in banks then the market pullback to March lows will become even
> more unlikely. Again, an analysis of past bear-bull markets show
> that financials must break down for the markets to test their lows.
> This makes the May 4th date all that much more important.
>
> 4. Tech stocks are incredibly strong on daily and weekly charts.
> Several new stocks from several new non-tech industries have now
> registered bullish bias on their weekly charts.
>
> What I am saying is charts are showing that a pullback to March lows
> is extemely unlikely. So at least for the near future (say till the
> next Q earnings season) there is likely no major pullback in the
> markets. Say what you will I follow the adage "The trend if your
> friend till the bend at the end and I don't see no bend!"
On Apr 25 09:28 PM montyman wrote:
> Cetin you're a political genius at getting attention. You are already
> developing followers and soon you will be famous!