August 28: Daily Contrarian Reads

The Shocking Truth About The Hideously Over-Valued Russell 2000

Which of the following is the actual P/E ratio for the Russell 2000 Index …..Believe it or not, the correct answer is “c” (78.7X). That means that the small-cap sector is not only hugely overvalued in its own right, it is in relative terms as well. As you can see from the chart below, the Russell 2000’s true P/E today is higher than it was at either the top of the internet bubble or the 2007 bull market peak…… But Deluard isn’t buying that excuse. Though the proper calculation takes more work, the alternative is the functional equivalent of reporting “profits before expenses” — which he characterized as not unlike the creative accounting practices used during the internet bubble. To calculate an index’s true P/E, he points out, all you need to do is divide the combined total market cap of all component companies by the sum of all those companies’ trailing 12 months earnings. When Deluard did those calculations, he discovered that the Russell 2000’s true P/E is 78.7.

The Inconvenient Truth About Al Gore And The Climate ‘Experts’

“Sooner or later,” Gore tweeted, “climate deniers in the GOP will have to confront their willful blindness to the climate crisis.” But skeptics of climate alarmism have their eyes wide open and don’t like what they see……If the environmental movement’s so-called experts had been correct, nearly all animal species would be extinct today, as S. Dillon Ripley, longtime head of the Smithsonian Institution, predicted. As Nigel Calder and Kenneth Watt had it, the Earth would likely be in another ice age today. According to geochemist Harrison Brown, copper, lead, zinc, tin, gold and silver would now be gone. Likewise, Watt and U.S. government analysts predicted that U.S. oil and natural gas reserves would be depleted by now. Instead, we’re drowning in the stuff.

July Durable Goods Plunge—Rinse, Repeat

The Census Bureau reported today updated estimates for Durable Goods in July 2017. Quite frankly, nothing has changed so minimal commentary is all that is required. The aircraft anomaly from last month faded, leaving total new orders of $229.2 billion (seasonally-adjusted). That is less than in May before the Boeing surge, and less even than estimated order volume in March 2017.

Calling Mitch McConnell’s Debt Ceiling Bluff

Senate Majority Leader Mitch McConnell woke up on the wrong side of the bed on Monday.  Who could blame him?  His summer vacation’s been ruined.  President Trump’s been riding him all month like a pack mule….The spoiler of Mitch’s summer vacation. People should generally avoid finding themselves on the receiving end of the master Tweeter’s fire and fury mode if they suffer from conditions such as geographic distance insufficiency or complete lack of nuclear deterrent syndrome. What’s more, on Monday McConnell had to rise early and put on his suit and tie like an ordinary working stiff.  While his Congressional cohorts were busy vacationing in their summer recess, McConnell had important business to tend to that couldn’t wait until the return of Congress on September 5.  Namely, he had to make a public display of unity in his home state of Kentucky with Treasury Secretary Steven Mnuchin.

Jackson Hole—-Controlled Demolition

This is the week-of-weeks when the official grand viziers of finance gather at Jackson Hole, Wyoming, to confab and interpret the lay of animal neck-bones and other auguries scattered in the sand, with the hope of steering the awesome powers of the universe this was or that as they affect the operations of money. The exercise is hardly different in function from the sort of rude ceremonials that took place on top of Sumerian ziggurats and Aztec temples — to reassure the masses that effective spells for favor of the Gods have been cast — except that in our civilization money is God.

Storm Warnings

No, I am not talking about “Hurricane Harvey” which will likely be the first hurricane to strike the Texas coast since 2008, but rather the potential for another “debt ceiling” debacle brewing in Washington. Just recently, Goldman Sachs raised its odds for a government shutdown from 33% to 50% which was further supported by recent statements from President Trump that he would be willing to risk a Government “shutdown” to get his border wall funded. However, as noted yesterday…

Why The Stock Market’s Trump Bump Is Running On Vapors

All good things must come to an end. Economic expansions give way to economic downturns. Asset bubbles burst. Summer vacations yield to the start of the new school year. Life ends in death…..The post-election optimism — reflected in the prices of U.S. stocks, bonds and the dollar, and in measures of business and consumer sentiment — was based on expectations of a rapid-fire series of initiatives designed to boost economic growth: repealing and replacing Obamacare; tax reform; a $1 trillion program of infrastructure investment; and a rollback of regulations. With reality underperforming expectations, the foundations of the Trump bump are being challenged. To date, President Donald Trump and the Republican-controlled Congress have managed to make inroads only on deregulation, largely the result of executive orders.

Korea, Afghanistan and the Never Ending War Trap

The bulk of Washington’s “aid” to Kabul throughout these past 16 years has been on the bombing, not the economy, front. Government corruption is cataclysmic. Warlords rule. The Taliban thrive because they offer local protection. Much to Pashtun ire, most of the army is Tajik. Tajik politicians are mostly close to India while most Pashtun favor Pakistan (after all, they have cousins on the other side of the Durand line; enter the dream of a future, reunited Pashtunistan). On the GWOT (Global War on Terror) front, al-Qaeda would not even exist if the late Dr Zbig “Grand Chessboard” Brzezinski had not come up with the idea of a sprawling, well-weaponized private army of demented jihadis-cum-tribal Afghans fighting the communist government in Kabul during the 1980s. Add to this the myth that the Pentagon needs to be on the ground in Afghanistan to prevent jihadis from attacking America. Al-Qaeda is extinct in Afghanistan. And Daesh does not need territory to concoct/project its DIY jihad.

“Peak PEG” – The S&P Has Never, Ever Been This Expensive

In this brief note we discuss how, on some reasonable metrics, the S&P may qualify as the most expensive in history. When compared to potential economic growth, multiples on the S&P500 exceed even those seen during the Tech Bubble in 2000. To value the S&P index, we use a variation of the Shiller P/E and the Hussman P/E. In a simplistic form, the ‘Peak PEG ratio’ is a price to peak-earnings multiple, adjusted for long-run trend growth. It considers the highest (rather than average) earnings over the previous 10 years and then divides for growth potential. When measured against potential growth, even on its highest earnings, the S&P has never before been this expensive. It is 60% above its historical average fair value. Firstly, using peak earnings instead of average earnings helps defuse one of the ordinary complaints to cyclically-adjusted Shiller P/E, or that it incorporates the bad earnings from 10 years ago, during the Great Financial Crisis, an outlier.

Our Post-Charlottesville Narrative Is A National Embarrassment

Pundits, journalists, politicians, clergy, law enforcement, sociologists—all may agree or disagree to varying degrees about what the Charlottesville mayhem of August 12 means for our country. Any number of interpretations could be useful and instructive. But above all Charlottesville has shown just how profoundly broken and destructively useless our media industry and political establishment really are. It is a genuine national embarrassment.