It just doesn't matter! It just doesn't matter!
As a sign that the markets are completely out of whack, I chose to watch Bill Murray's inspirational fireside chat from Meatballs instead of reading about the market's action on Thursday.
The U.S. markets are in this bizarre, up, up, up movement that just makes no sense. Again.
This is exactly what we saw in mid-February. To the letter. Remember what happened next?
Fed Chair Powell floods the economy with money and the market skyrockets. But we saw what happened in mid-February. Covid-19 and its associated lockdowns have produced a pain that has never been seen before, economically speaking.
With the Congressional Budget Office predicting a 38% decline in U.S. GDP for the second quarter, I just can't wrap my head around the fact that the Nasdaq Composite has risen more than 5% this year.
Are things 5% better than they were on Dec. 31? Are you on peyote?
How could assets be worth MORE when estimates for operating earnings are so much lower? FactSet's consensus calls for a 20.3% decline in S&P 500 EPS this year; that consensus called for only a 3.4% decline as of March 31. As of December 31st, 2019, amazingly, FactSet's consensus called for a 7-8% increase in S&P 500 earnings in 2020.
So, we have seen a decrement to consensus earnings of more than 25 percentage points, and the market has barely budged. It's insanity.
Lest one think this is a temporary Covid-19 phenomenon, the market has brought down 2021 EPS estimates, as well. As of Dec. 31, the FactSet consensus EPS estimate for 2021 stood at $196 per share and that figure has now fallen to $165 per share. Essentially, the market is saying that 2021's S&P 500 earnings will look a lot like 2019's earnings ($163.02), which looked a lot like 2018's earnings ($161.45.)
But if earnings aren't growing why are stock prices rising? It's a John Kennedy Toole-style A Confederacy of Dunces up in here.
I have never seen a parade of people less insightful than some of those I see on financial TV -- on the rare occasions that I watch. Seriously, none of these people could read a balance sheet, and none of them appear to have ever tried to. But they act the same way as each other. They buy, buy, buy every time Powell opens the floodgates, and herd mentality does tend to work in short bursts.
But that's not how the true playmakers have amassed fortunes. Investors such as Sam Zell, Carl Icahn, Jeffrey Gundlach, and even the Oracle himself, Warren Buffett, built empires by taking the other side of the trade. Is anyone doing that now? Sure. You just don't see them much on TV.
The explosion of information has greatly eased the process of fundamental equity research. It's much easier to do now than it was when I started poring over financial statements for Lehman Brothers in 1992.
Information is everywhere. It's just a matter of having the intellectual fortitude and academic staying power to actually use that information to build a spreadsheet.
You should do that. Ignore every talking head and build a portfolio that is based on cash returned to you from companies that generate more cash than they consume.
As for the other stuff, ignore the incessant chorus of inanity from the financial media. As always, you should listen to Bill Murray.
He knows what he is talking about.