THE S&P IS OVERVALUED vs EARNINGS

S&P500 continue to defy gravity despite a host of negative news (The DOHA debacle and earnings recession in the S&P500 just to name two) and poor economic data coming out from the US.

This has led many to believe that the Plunge Protection Team (PPT) is supporting the market. Otherwise how can one explain this?

Source: Zero Hedge




This is not surprising given that all data points to a potential recession - if one is not already happening. But the Fed has to give the impression that all is good with the economy. How else but to talk up the economy and support it by pushing the S&P500 higher? Aren't the stock market reflective of the economy health? Well NO! Earnings in the S&P500 has been going down for four consecutive months! That is not an indication of a good economy. But the Fed and their cheerleading supporters continue to give misleading picture as to the health of the economy.

In reality, the Fed has really no more arsenal, short of another massive QE. So what more could they do?

That is why I believe there will be no more interest rates hike this year and a possible QE in the next few months.Should the Fed raise interest rates, then it is economic suicide pure and simple. Non-financial companies have borrowed massively to fund their dividends and buybacks, and what have they got to show for it? Nothing! EPS beats are all manufactured by lowering the forecast and massive buybacks. How can that be a signal for positive growth?

The S&P500 is now trading at an astounding 24x times earnings! As earnings continue to disappoint the PE ratio will widen and put the risk of collapse even more severe.

The only stocks that I am invested in now are the mining stocks and related precious metals ETFs which I think have room for further upside. They are the best hedge against the eventual collapse of the economy and a major debt crisis.