Bottom line, companies have delivered earnings like a .300+ hitter with 35+ hrs. But you're paying that hitter $35m+/yr (record salary). Good for now. But will this hitter earn its pay next year, and the year after?
1/8
As of August 23, 2021, 475 (95%) S&P 500 companies have reported Q2 2021 earnings with a beat rate of 87%, a new record. This compares to an average beat rate of 71% since the Great Recession ended.
2/8
Analysts expected YoY earnings of ~55%. The latest blended est. is ~ 95%. This jump of ~40% is record.
YoY earnings is compared to Q2 20220, the worst point of the lockdown, big base effect. This is why estimates for Q3 2021 earnings growth drop to 29% and 20% for Q4 2021.
3/8
Company guidance, an index of which is shown below, shows companies continue to see strong earnings growth.
It remains to be seen if more COVID restrictions or rising inflationary costs will dampen expectations for earnings in the future.
4/8
Hefty earnings growth is still needed. The 12-mo forward earnings P/E ratio, a Wall Street fav, is still quite high at 22.
Investors do not seemed bothered by these valuations. But should earnings disappoint, which has not been the case recently, investors may reconsider.
5/8
@5thrule argues that SPX valuation is made up of 3 parts:
* The current value of assets, or the book value
* The NPV of expected future earnings. Or, the median SPX earnings forecast by WS analysts for the next 3 years
* A residual component he calls “Hopes and Dreams”
6/8
Normally a market should factor in “Hopes and Dreams” as companies have flexible structures and can re-make themselves as needed. How much should this be?
The next chart shows “Hopes and Dreams” make up the largest part of valuation since the bubble peak of 2000.
7/8
Finally, market capitalization to GDP is also at a new record (the so-called Buffett Indicator).
So nothing about this market is cheap. But companies are delivering on earnings and they expect to continue to do so.
How long will they continues to is the question.
8/8
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A great piece by @EconTodd and James Carter about how the US Treasury messed up the last 15 years ago. (h/t @judyshel)
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Rather than issuing 50- or 100-year bonds when interest rates were at rock-bottom, the US Treasury dismissed this option and simply continued to borrow on a short-term basis. Now that US interest payments are ballooning, the scale of this blunder has become apparent, as have the implications for future generations.
This almost triggered me to read as I have been arguing the same thing.
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April 29, 2012
“I don’t get why the Treasury thinks floaters are a good idea with short-term rates at zero percent, as they only have one way to go, and that’s up,” said James Bianco, president of Bianco Research LLC in Chicago in an interview on April 24.
“They should be lessening the cost of financing the United States government for the taxpayers,” Bianco said. “The Treasury should be issuing 100 year or perpetual bonds until the market can’t stand it anymore to lock in these rates.”
In a 2019 op-ed I wrote for Bloomberg ...
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For more than 60 years, the Treasury has relied on a select group of primary dealers – currently numbering 24 - who are not only authorized to trade with the Fed, but are also obligated to bid at government debt auctions. That means they are expected to put their own capital at risk and buy the securities issued by the Treasury. This group of dealers accounts for a large chunk of the Treasury Borrowing Advisory Committee, or TBAC, which counsels the government on its financing needs.
The Treasury has historically placed a great deal of weight on this group’s recommendations. The TBAC has lately stressed the importance of regular and predictable securities issuance, along with demand for that issuance. When the Treasury brought up the idea of ultra-long bonds in 2017, the TBAC cautioned against the move and pointed to surveys of investors that suggested tepid interest.
As this chart shows, the current BTC price is the average purchase price of the Spot BTC ETF buyers. ~$57K to ~$58K
2/6
So, about $37 billion in Spot BTC assets (x-GBTC) now have no profits and maybe a small loss.
3/6
As I have been detailing, the 13F shows very little institutional buying of these ETFs. 95+% of the buyers are either hedge funds, institutional investors holding less than $100m, or retail degens.
It confirms my fear that the Spot BTC ETFs are effectively "orange FOMO poker chips" for paper-handed small-time traders (degens).
These degens are getting close to their breakeven, which could turn them in big-time sellers.
Let's dig in.
3/11
A Citi study shows that investment advisors (IAs) hold ~35% of all ETFs. The table shows the 4 largest BTC ETFs. IA's (blue ribbon) hold less than 1% of the New BTC ETFs.
For comparison, see the two popular non-equity ETFs, GLD and TLT. IAs hold 22% of HYG and 40% of TLT.
The deficit as a % of GDP (bottom), now 5.93%, is higher than in any period except the Great Recession (2007 - 2009) and the 2020 COVID shutdown (dotted line).
The government is borrowing to spend money like the economy is trying to recover from a recession.
2/6
This separates Federal revenues (orange) and spending (blue).
The difference is the deficit (middle panel).
The bottom panel (black) shows that taxes only cover 73% of federal spending. The other 27% has to be borrowed.
3/6
Yearly federal spending is $6.24 trillion or 22.3% of the US economy (or nominal GDP).
Like the deficit chart above, the only time the government has spent this much as a % of GDP is when trying to get the economy out of a recession.
The 13Fs are a disappointment. Very little wealth manager adoption so far (like 1%).
Unrealized gains are shrinking fast.
Why I've been skeptical of Spot BTC ETFs.
2/7
* March 11 = only $1B inflow day.
* March 12 = Brokerage report saying $220B of inflows over the next 3 years (effectively predicting constant inflows, forever).
* March 13, all-time high close (5PM ET price)
Since the mid-March frenzy, inflows peaked (top panel).
3/7
The 3/31 13Fs are coming out, and they are disappointing for those who thought a big boomer wave of buying BTC ETFs through wealth managers was underway. Only odd lots.
IBIT has only 27 13Fs with more than 10,000 IBIT shares (~$360k), way less than 1% of outstanding shares.