This is a very interesting chart from Wolfstreet.
Despite the S&P Index at record levels, the earnings have pretty much remain at the Q4 2011 level. Compared to that period, the S&P is trading at 87% higher.
Now, if you look at the light blue bars, the amount of share buybacks have actually increased from the period of Q4 2011 to the present by more than 30%!
The worrying part is that the share buybacks are being fueled by companies taking in even more debt to fund the purchases.
So looking at the chart we can surmise that:
1) The S&P is overvalued by 87%. To fall back into the same valuation the S&P index have to fall by more than 45% from its current level!
2) Because much of the buybacks are driven by debt, further increase in interest rate will erode earnings. The anticipation of higher interest rate is also pushing the USD stronger. 50% of the S&P companies derive their earnings from overseas. Thus, a stronger USD will weaken earnings. This will be a double whammy on the stocks.
3) The S&P is driven earnings using non-GAAP method. If the GAAP is applied, companies which have positive earnings will suffer losses. In part Wall Street rigs the game by pushing the earnings estimates lower so that it will be an easy beat, and thus beneficial to the stocks.
One of the ratios that I am always against is using the Debt to EBIDTA Ratio which often paints a brighter picture of a company's finances since it excludes, Interest Payments (ironic with so much debt at hand), Depreciation (capital invested in plant and equipment reduce in value over time) and Tax (like the government is going to let you get away with it). never mind the Amortisation which is subjective. So if the EBIDTA base is large (with so many items being excluded), then the ratio will be small. Isn't that a rosy picture!
But if you include all these items, the base is going to be small and thus the ratio will be big, and suddenly the picture turns ugly.
So it pays to study the financial statements diligently.
Meanwhile despite a series of takedown in gold and silver, the prices still remain stubbornly where they were.
However, with Thursday through Monday being in the options expiry period look out for more attempts to drive down the prices of gold and silver. With silver shorts being at high levels with physical being in demand, and production trailing demand, it will be an interesting few days ahead.
Despite the S&P Index at record levels, the earnings have pretty much remain at the Q4 2011 level. Compared to that period, the S&P is trading at 87% higher.
Now, if you look at the light blue bars, the amount of share buybacks have actually increased from the period of Q4 2011 to the present by more than 30%!
The worrying part is that the share buybacks are being fueled by companies taking in even more debt to fund the purchases.
So looking at the chart we can surmise that:
1) The S&P is overvalued by 87%. To fall back into the same valuation the S&P index have to fall by more than 45% from its current level!
2) Because much of the buybacks are driven by debt, further increase in interest rate will erode earnings. The anticipation of higher interest rate is also pushing the USD stronger. 50% of the S&P companies derive their earnings from overseas. Thus, a stronger USD will weaken earnings. This will be a double whammy on the stocks.
3) The S&P is driven earnings using non-GAAP method. If the GAAP is applied, companies which have positive earnings will suffer losses. In part Wall Street rigs the game by pushing the earnings estimates lower so that it will be an easy beat, and thus beneficial to the stocks.
One of the ratios that I am always against is using the Debt to EBIDTA Ratio which often paints a brighter picture of a company's finances since it excludes, Interest Payments (ironic with so much debt at hand), Depreciation (capital invested in plant and equipment reduce in value over time) and Tax (like the government is going to let you get away with it). never mind the Amortisation which is subjective. So if the EBIDTA base is large (with so many items being excluded), then the ratio will be small. Isn't that a rosy picture!
But if you include all these items, the base is going to be small and thus the ratio will be big, and suddenly the picture turns ugly.
So it pays to study the financial statements diligently.
Meanwhile despite a series of takedown in gold and silver, the prices still remain stubbornly where they were.
However, with Thursday through Monday being in the options expiry period look out for more attempts to drive down the prices of gold and silver. With silver shorts being at high levels with physical being in demand, and production trailing demand, it will be an interesting few days ahead.
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