Equity Tuesday : “Are We There Yet ?” Markets

If you are a parent, you would know the sound of that endless drone from that pesky 4 year old on a journey, “Are we there yet ?” repeated a thousand times. Initially it would be painful, after 15 minutes, it would become noise as you would endure from an old engine which eventually becomes part of the  inured suffering of parenthood.

I could not expect the S&P 500 to make a new historic high in times of such global distress and, really, mostly mediocre economic numbers. Expectations that were flawed because I had already reasoned that stock buybacks make the world go round and earnings had all beat market because EPS numbers were all nicely doctored to health. https://tradehaven.net/market/equity-wednesday-if-you-cant-improve-earnings-then-improve-the-earnings-per-share/

And it was not just me. Zerohedge has provided some numbers for us to work with to understand the new world order. http://www.zerohedge.com/news/2014-08-25/behold-magic-accounting-first-half-earnings

I cannot understand the impatience to rally to new heights unless I put myself into the shoes of the 4 y.o., time is of the essence and it is not really very much different from some hedge funds and investors I know who are desperately trying to hit that jackpot so they can leave the crazy nut job markets.

The trouble is that many peripheral investors are dragged along in the ride without knowing what they are in for.

With 6 consecutive quarters of continuous rallies, we have a month to go to close the 7th and moves are getting larger and larger with volumes crashing in a hurry.

Chart : 30 year quarterly chart of the S&P 500

S&P 500 30Y Chart

And all that volume includes the stock buybacks too which has become the Ice Bucket Challenge for companies who are willing to risk credit ratings to buy back stock.

It is much like the sub prime crisis with banks telling their staff to do whatever Goldman is doing because it works.

Another article to share would be a piece from Harvard Business Review that unveiled that corporate profits have not translated into widespread economic prosperity because 54% of earnings (more now) are used in stock buybacks and another 37% to dividends. http://hbr.org/2014/09/profits-without-prosperity/ar/1?utm_campaign=Socialflow&utm_source=Socialflow&utm_medium=Tweet

The 4 year old did not really know then where we were flying off too except that he was impatient to get there.

I knew that it was an 8 hour flight to Disneyland and wanted to tell him that good things come to all who wait. But it was impossible to reason with the “Are we there yet ?” stamina.

And so it is now. Markets where good things come to those who rush. Or so it seems.

I stopped out of the S&P shorts and to all my friends who ask me “Are we there yet ?”, I think it won’t be too long.