Everybody Loves the Donald

By David Stockman  |  November 1, 2019

It’s just terrific that the Dow Jones Industrial Average is up 250 points and the S&P 500 Index is making new all-time highs today.

Why wouldn’t the equity indexes behave this way?

After all, the U.S. economy added a whopping 128,000 new jobs in October – a whole lot better than the 75,000 economists expected…

Folks, this news is about as solid as the “consensus” on “core” U.S.-China Trade War “points” Bubblevision is touting this hour.

Indeed, this is how the Tweeter-in-Chief reported it…

Here’s Sven Henrich to remind us that this is the “…bombast, braggadocio, and bullshit” part…

This Is the Process of “Peak Trump”

Recession is knocking on Main Street’s front door. Yet Wall Street pays no mind. They keep chasing momentum. But this is the fifth time in four months they’ve run the S&P 500 above 3,000.

He may have been booed by the swamp creatures at Nationals Park, and he may be only weeks away from impeachment by the U.S. House of Representatives.

By the Donald’s lights, he’s the veritable king of all that’s so great you can’t stand it:

The S&P just hit an ALL TIME HIGH. This is a big win for jobs, 401-K’s, and, frankly, EVERYONE! Our Country is doing great. Even killed long sought ISIS murderer, Al-Baghdadi. We are stronger than ever before, with GREAT upward potential. Enjoy!

He’s Far from Alone in his Delusion

Indeed, he’s aided and abetted by Bubblevision’s roster of all-star economists, asset allocators, investment strategists, talking-heads, and straight-up propagandists who pollute the market dialogue for hours on end, day after day after day.

These people are about as stupid, lazy, and mendacious as they come.

They claim to be giving advice, not algorithmic input to machines that trade by the nanosecond. What’s the point on slow-mo TV, anyway?

Yet, today, as it they do every day, they were all almost literally foaming at the mouth about a breakout that, finally, allegedly, is here.

There’s big upside ahead… Back up the trucks…

But How Could this Be?

From a risk-reward perspective, given the political, economic and financial fragilities of the present moment, you surely need 15% upside as an investor to risk the 40% to 60% downside that recessions inexorably generate.

And even that assumes you are possessed of such cold-blooded discipline and acute market insight that you’ll know exactly when to bail after swoon materializes this time around.

Then again – and for the sake of apples-to-apples historical comparison – that implies the S&P 500 can hit 3,500 (about 14% from where it is today) against reported earnings of $124 per share for the trailing 12 months ended September 30, 2019.

The latter figure is what’s being posted for the third quarter, adjusted for the $10 per share freebie owing to the corporate tax cut. So, this “breakout” bet implies a price-to-earnings multiple at 28.2 times against in-place, pre-recession earnings.

Let’s see. Back when S&P earnings peaked in June 2007 at $84.92 per share, the implied price-to-earnings multiple was 18.3 times at an index level of 1,550, which was posted a few months later.

Likewise, at the time of the dot-com mania in September 2000, reported S&P 500 earnings peaked at $53.70 per share. That reflected a price-to-earnings multiple of 26.8 against the S&P 500 peak of 1,440.

Neither of those moments of madness resulted in something to “enjoy”…

In fact, a little more than a year later, the S&P 500 was down 50% and 45%, respectively. At these recent historical economic and earnings peaks, there was no incremental “reward” left at all, just prodigiously painful downside “risk.”

What possible case is there for sustaining a record price-to-earnings multiple on the broad market under present circumstances, fraught as they are with headwinds?
Why in the world does Bubblevision assume the cycle can rebound from what will be the third straight quarter of negative earnings comparisons? We’re currently looking at a 4.7% year-over-year decline.

So, we assume we’re about to soldier on to bigger, better things for several more years to come?

That’s the kind of mindless, open-end optimism at the very heart of this latest “breakout.”

Choose Your Own Adventure

This is the most politicized market in history. And the Tweeter-in-Chief is still in charge. So, the situation is changing almost by the minute.

It’s “Impeachment!” in Imperial Washington and all over the Mainstream Media. It’s “Easy Money!” on Wall Street and across Bubblevision.

And it seems as if the whole world has, indeed, gone mad.

Amid this chaos, prices will continue to rise and fall, trends will continue to develop and dissipate.

Well, The Stockman Letter is made for times like these. And we’ve updated our design to help us better navigate to not only the safest harbors but also the most promising opportunities.

The stakes are as high as they can be heading into 2020. Markets appear to be straining, catching up to an economy that’s been weak and getting weaker for years.

The Donald is tied up in the day-to-day movements of the major stock indexes like no president before him. The increasingly desperate incumbent will do anything he must to hold the White House.

It’s a major tipping point. And there’s no telling what the Donald’s great disruptions could do to your wealth.

You’ve got to be nimble to win in this market…

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David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR