Jim Bianco Profile picture
Aug 25, 2021 8 tweets 3 min read Read on X
Tweet storm on stock market valuation.

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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More from @biancoresearch

Mar 13
1/7

Bar chart of the 10-year yield.

As I write, it reached 4.35%. This is the highest yield since February 25. Image
2/7

No risk-off rally from bonds throughout most of the stock market decline.

We only saw flashes of a risk-off rally earlier this week when stocks were under extreme pressure, but those instances lasted only a few hours.
3/7

Since February 24, developed world 10-year yields are soaring. Only the US is lower, but only 6 bps now.

First, we would argue the pull of soaring yields around the world are keeping US yields up even though stocks are now down 8% to 10%. Image
Read 7 tweets
Feb 28
1/4

Everyone needs to calm down about the Atlanta Fed GDPnow flipping to negative (chart).

It was driven by one statistic, merchandise trade imports, which can snap back as early as next month and take GDPnow back up.

The world is not ending. Image
2/4

Here is the Merchandise trade deficit.

I labeled the last three months to show how much it blew out (and March 2022). Image
3/4

The trade deficit exploded in the last three months, as well as March 2022, due to the surge in imports (orange) while exports (blue) remained relatively unchanged.
---
The Ukraine War started in March 2022, and importers rushed to import products (such as grain) from the Black Sea area ahead of potential disruption.

Similarly, the last three months have seen importers rush to bring goods into the country ahead of Trump's tariffs.Image
Read 4 tweets
Feb 24
1/7

Two major problems need to be addressed, and yes, I agree they cannot be ignored anymore (think @HoweGeneration fourth turning).

The first is the debt situation, as @nfergus detailed:

2/7

The US cannot continue this level of deficit/debt. Increasing taxes and spending cuts will not correct this without hurting the economy.

2024 deficits were 6.58% of GDP. This happens in major crises (civil war, WW2, etc.). What is the major crisis now? Too much debt? Image
3/7

The chart above shows that we have never seen this level of deficits with full employment. A cocktail to explode inflation higher.

Maybe DOGE, Gov't layoffs, or deportations can correct this. It must be corrected.

And cutting spending does not address debt levels. Image
Read 7 tweets
Feb 22
1/16

A thread on The Mar-A-Lago Accord (MALA).

tl:dr

Take it seriously, not literally

The status quo cannot last. If we do nothing, it ends badly. What is the alternative?

Most of it has either already happened, or is underway. We weren't aware of the name.
2/16

Powell on Dec 4, 2024 - “The U.S. federal budget is on an unsustainable path. The debt is not at an unsustainable level, but the path is unsustainable, and we know that we have to change that"

thehill.com/business/50225…
3/16

He's right, we can no longer do nothing. That will result in disaster. Something has to change.

And that is not trying harder to raise taxes and cut spending.

Insanity is doing the same thing over and over expecting a different result.

New approach is needed (MALA) Image
Read 19 tweets
Jan 17
1/5

I have not posted a spot $BTC ETF update in a while, so here is one.

These ETFs started trading a year ago (Jan 11, 2024). Their total assets are $114 billion. (Note that they started at $29B on day 1 due to the $GBTC conversion.)

Three funds make up the vast majority. Image
2/5

The net NEW money invested in all Spot BTC ETFs was $36.69B (bottom panel).

This excludes the $29B of $GBTC conversion on day 1. Image
3/5

The dollar cost average purchase price is $BTC $74.3k (blue line), representing an unrealized gain of ~25%, or $12.73B (bottom panel).

All these gains came after the election. Image
Read 5 tweets
Jan 3
1/5

*US DEC. ISM MANUFACTURING INDEX RISES TO 49.3; EST. 48.2

ISM beat

And as the chart shows, this is the second-highest reading since October 2022 (26 months).

(best sure to see the last post in this thread)Image
2/5

Prices Paid 52.5 versus the estimate of 51.8

It is staying "sticky" above 50 (meaning more rising than falling prices)

Remind me again ... why is the Fed cutting rates? Image
3/5

New Orders is in the Index of Leading Economic Indicators. Economists think it is that important.

It jumped to 52.5, equaling its highest reading since June 2022 (the month YoY CPI hit 9%).

Remind me again: why is the Fed cutting rates? Image
Read 5 tweets

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