Monday, October 7, 2013

Blue Angels Flying High For S&P 500 (10/3 excerpt)

While Washington is flying blind, our Blue Angels analysis shows that S&P 500 forward earnings is flying to new record highs. In our analysis of P/E x E, I multiply forward earnings by forward P/Es of 10.0-15.0 in increments of 1.0 to derive hypothetical flight paths for the stock market. Like the Navy’s Blue Angels fighter pilots, the paths never cross. Then I track the S&P 500 as the stunt plane flying among the blue vapor trails of our Blue Angels.

The US has one of the best-looking Blue Angels formations in the world. I’ve just compiled a new publication, Global MSCI Blue Angels, showing this analysis for all the major global MSCI stock price indexes. It includes a chart showing the World MSCI excluding the US. Unlike for the US, forward earnings for that measure isn't even close to a new record high. Instead, it peaked in mid-2011 well below the previous peak in 2008. It dipped during the second half of 2011 and has been basically flat-lining since then.

In the past couple of weeks, forward earnings seem to be turning up outside the US, particularly in both Europe and Emerging Markets. Our new publication covers 44 countries. Like the US, China is one of the few countries where forward earnings is rising to fresh record highs. However, China’s forward P/E is only 9.0, well below the 14.2 in the US. That’s weighing on the World ex-US P/E, which is currently 12.6.

Japan’s Blue Angels have put on a good show since late last year. Forward earnings was flat-lining only slightly above the 2009 cyclical low during 2011 and 2012. The introduction of Abeconomics boosted forward earnings by 36.4% since late last year, though it is ascending at a slower pace in recent weeks and is still below its previous cyclical peak. The forward P/E rose from just north of 10 to just south of 15.

Today's Morning Briefing: Binary Outcome. (1) On the verge of either a meltdown or a melt-up. (2) Tailwinds from October to April. (3) Obama said buy on March 3, 2009. Now he says sell! (4) The 14th Amendment. (5) Boehner may have to fall on his sword. (6) Hastert Rule may not rule on debt ceiling. (7) Right-wing vs. left-wing conspiracies. (8) Fed remains clueless and is now data-less. (9) Talking Fed heads. (10) QE’s bang per buck is tiny. (11) “Gravity.” (+ +). (More for subscribers.)

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