When Wall Street shills come on CNBC and spout BS about S&P 500 earnings going higher, justifying the current P/E ratios, remember this chart. Earnings always revert to the mean. Do you really think S&P 500 earnings are going to soar from this level as the world sinks into recession? The recovery in profits was based on trillions of dollars of debt based stimulus pumped into the veins of the zombie banks. Now it’s time to pay the piper.
With third-quarter earnings largely in the books (99% of S&P 500 companies have reported for Q3 2011), today’s chart provides some long-term perspective on the current earnings environment by focusing on 12-month, as reported S&P 500 earnings. Today’s chart illustrates how earnings declined over 92% from its Q3 2007 peak to Q1 2009 low which brought inflation-adjusted earnings to near Great Depression lows. Since its Q1 2009 low, S&P 500 earnings have surged (up over 1100%) and currently come in at a level that is greater than what occurred at the peak of the dot-com bubble and very near what occurred at the peak of the credit bubble. It is interesting to note that the original run up in real earnings from Great Depression lows to credit bubble highs took over 78 years. The current spike has taken 29 months.
Administrator says:
Karl Denninger’s view:
The EU summit “deal” is noise; we knew going in there would be no “grand bargain” and there isn’t. Britain said “stuff it” (rightly so) along with a few others; those who went along did so pretty much at gunpoint.
The vassal state model may look attractive as an alternative to Mekosy, but they’re nuts. What they’ll ultimately get out of this is a war. Oh Archduke, is that you over there somewhere?
The internal issue for America is more-acute in the market sense. Texas Instruments last night warned on weakening demand and got clocked in the aftermarket. This morning Dupont issued a warning. Either standing alone could be looked at as company-specific. The two together cannot.
I said a bit over a year ago that PPI pressures would eventually filter through and hammer margins directly, and likely would result in cost-push pressures that ultimately would hurt the top line — although perhaps not at the firms that had the cost pressures. In other words the deteriorating standard of living would eventually have to show up somewhere — “charge it” only works for a while.
It appears that it now is showing up. This sucks, to be blunt, but it is very unlikely to be contained.
My macro-level view has not changed much; timing is everything in the markets and I still believe we’ll more-or-less hold together until late in December — another couple of weeks, and perhaps into early January, but in 2012 it’s going to come apart.
Those who think that we’ll get through the election will be wrong — I’ll go out on the limb and put that out there right now. No chance folks — there’s not that much dry powder available to anyone.
As such consider your positions carefully if you’re long the market — the wild gyrations are a warning — overall “bullish” markets don’t behave this way, but ones that are about to fall apart sure as hell do.
I expect a very profitable 2012 — and not on the long side either.
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9th December 2011 at 10:22 am
TeresaE says:
The wheels on the bus go round and round,
round and round,
round and round.
The wheels on the bus go round and round
until they fly off taking the entire Western world middle class with them.
For some reason, every time I’ve read something about Europe in the last few months, this song has popped into my head.
Admin says, “…The recovery in profits was based on trillions of dollars of debt based stimulus pumped into the veins of the zombie banks. Now it’s time to pay the piper.”
I have one revision:
The recovery in profits was based on trillions of dollars of debt based stimulus [plus the blood of millions of middle class workers who watched their government gift billions to China and Brazil to take more of our jobs faster] pumped into the veins of the zombie banks. Now it’s time to pay the piper.
Which leads me to one of my top five reasons we are screwed. Even IF they manage to “create” enough $$$ to save the banks (again) AND not cause hyperinflation on Main Street (highly unlikely), we still have that “little” problem of there being almost NO jobs for the MASSES.
Statistically NO jobs that would enable people to pay their student loan debt and support a household.
the wheels on the bus…
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9th December 2011 at 10:55 am
Novista says:
Look at those lovely peaks and troughs! … ‘snick?
(waiting)
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9th December 2011 at 6:11 pm