The first installment of this year\u2019s Barron\u2019s Roundtable was weirdly muddled, with a lengthy back-and-forth about 2013 S&P 500 EPS that never ever mentioned a specific EPS estimate.\u00a0 When asked directly, \u201cWhat is your S&P 500 earnings estimate for 2013?\u201d Abby Cohen did everything but answer the question, first noting that consensus estimates are for 12-13% growth and later revealing that Goldman\u2019s top-down number (but, apparently, not hers) is growth in the \u201cmid- to high single digits.\u201d T. Rowe\u2019s Brian Rogers expects growth of \u201c5%, 6%, 7% for the year\u201d — \u00a0but off of what 2012 base he did not say.<\/p>\n
We learned once again that Bill Gross dislikes equities but knows little about them.\u00a0 He claimed that \u201cWages as a percentage of GDP have declined to 54% from 59% in the past 10 years.\u00a0 That trend would have to continue for earnings to keep going up.\u201d\u00a0 Actually they don\u2019t need that trend to \u201ckeep going up\u201d because A) nominal GDP will keep rising, B) big companies are gaining share \u2013 think about Amazon and that nice local book store that shut down five years ago, C) over a third of S&P profits are overseas, with an increasing share in emerging markets, D) companies can use free cash flow to grow EPS via acquisitions and share buy-backs.\u00a0 Gross is making the common error of assuming that corporate profits in the GDP accounts and S&P profits are more or less the same.\u00a0 They aren\u2019t.<\/p>\n
Piercing this gloomy thicket of disinformation was Felix Zulauf\u2019s bright beam of unconventional wisdom. The Swiss fund manager asserted, \u201cEurope\u2019s high priests of economic policy have put preservation of the euro above everything else.\u00a0 By doing that, they have destroyed millions of jobs and consigned millions of people to poverty.\u00a0 At some point this will backfire.\u00a0 You can\u2019t glue the European Union together forever with central bank money.\u201d\u00a0 And Felix made these related points:<\/p>\n
I agree with Felix. Currency arrangements are supposed to meet the needs of an economy \u2013 not the other way around.\u00a0 The Euro\u2019s raison d\u2019etre is political not economic.\u00a0 The Euro-zone is a non-democratic entity governed by unelected policy elites, and while the ECB can temporarily calm the bond markets with a flood of liquidity it cannot cut a 12% unemployment rate kept high by fiscal austerity, bank deleveraging over-regulation, and a dysfunctional currency regime.\u00a0 The menu peuple<\/i> will strike back at the voting booth, probably beginning in Italy this year.<\/p>\n
Because liquidity has brought complacency, problems in Europe are my top candidate to interrupt the current bull run in U.S. equities. But Q4 profits are not too bad and the fiscal cliff has been less of a problem\u00a0 than I thought, so the \u201cvaluation levitation\u201d will continue.\u00a0 Stocks need to get quite\u00a0a bit more expensive before they look safe to the investment committees that run large pension and endowment funds.<\/p>\n
Copyright Thomas Doerflinger 2013.\u00a0 All Rights Reserved.<\/p>\n","protected":false},"excerpt":{"rendered":"
The first installment of this year\u2019s Barron\u2019s Roundtable was weirdly muddled, with a lengthy back-and-forth about 2013 S&P 500 EPS that never ever mentioned a specific EPS estimate.\u00a0 When asked directly, \u201cWhat is your S&P 500 earnings estimate for 2013?\u201d … Continue reading