Thursday, March 1, 2018

The Usual Bagholders. Have Passed Wind At Their Backs

Mankind's capacity to con other men is unlimited. I can't speak for women...

"U.S. equity investors have the wind at their backs" 
- Warren Buffett, February 2018

It's abundantly clear that 99.99% of people don't understand the stock market and the economy. Especially the dunces on Wall Street. Last year, the S&P 500 blew far beyond all of Wall Street's end of year price targets. So, what did they do this year?  They all massively raised their price targets. If they had any fucking brain, they would have all lowered them...

Today, the global fake reflation trade got smoked by Forrest Trump. As if it needed any help, as it was already rolling over. The news breaks with the cycle. Every multinational on the planet will now be scrutinized for their exposure to trade retaliation. The Dow's biggest loser today was Boeing. Which happened to be the Dow's biggest gainer for the past year. Steel stocks which have the market cap of a gumball machine, rallied.

Never fear, there's so much horse shit in here, there has to be a pony somewhere:

I think we all see where I'm going with this:
 S&P 500 profit estimates at the end of the cycle have the veracity of a Magic 8 ball. Forward profit estimates are right now turning back into a pumpkin:

People confuse price with value. As I always say, just because someone paid a million dollars for a brick, doesn't make it worth a million dollars. We've been taught from birth to believe that price and value are synonymous - A high price car is a better car than a low priced car. In a highly efficient well-supplied market that can be true, however, in a market with finite supply, people will generally always overpay. Because they confuse price with value. Which is why people overbid in auctions.  

But for stocks, the story gets far worse, because "value" is determined by the earnings yield (E/P) - how much profit am I getting for each dollar I pay for a stock. As I said above, at the end of the cycle, the earnings yield has less and less reliability. 

At the end of the cycle, the usual bagholders are left holding a big bag of nothing.

Getting back to today's casino - checking the market at any point of the day other than the last minute, has been totally pointless. As I write mid-day Thursday, the casino has gone nowhere for a week. Last Thursday, I wrote that bulls were defending the tax cut Maginot Line. Here they are again. In the meantime, the 50 day was tested from both sides. And the trend-line has been decisively broken:

Last week I said that oil was providing critical support to the casino. This week, oil is down -7%, providing critical weakness:

Getting back to historical analogies, from the deflationary cycle standpoint, this is similar to 2014:

I see, it's all coming back to me, said the blind man as he pissed into the wind

On the other hand, this is not 2014

This is the time when ALL forward happy time predictions turn back into pumpkins. And all of the usual bagholders say in unison:

"Aw fuck, not this again!!!"

And all of the car-salesmen-turned-investment-advisors, say, "whoops we fucked you over again".

Our bad.