Friday, March 5, 2010

March Monetary Trends…

Below is the latest edition of Monetary Trends from the St. Louis Fed. You’ll note that most credit numbers are still contracting, inflation numbers are turning up, and money aggregates are decelerating their growth rates.

Before you dive into the report, there are a couple of charts I want to highlight. The first one is the S&P 500 trailing Price to Earnings ratio. It had spiked to all time record highs near 150! We knew that the 4th quarter earnings would result in this coming down, and now this chart reflects those numbers, coming in with a trailing P/E of “only” 90! What a bargain, get ‘em while they’re hot!

Please keep in mind stage 5 of Hyman Minsky's 7 bubble stages, the following excert is from my book, Flight to Financial Freedom:
Stage Five – Market Reversal/Insider Profit Taking:
Some wise voices will stand up and say that the bubble can no longer continue. They argue that long run fundamentals, the ratios and measurements, defy sound economic practices. In the bubble, these arguments disappear within one over-riding fact – the price is still rising. The voices of the wise are ignored by the greedy who justify the now insane prices with the euphoric claim that the world has fundamentally changed and this new world means higher prices. Then along comes the cruelest lie of them all, “There will most likely be a ‘soft’ landing!”

Meanwhile the jokesters on Wall Street and in the media create flashy brochures disguised as economic and market reports. They talk about “future earnings” as if they have ever been able to correctly divine the future, and they talk about “operating” earnings that conveniently ignore “one time” and “special” expense items that seem to occur far more frequently, as in every single reporting season. Those economic and market marketing brochures are also built upon what would be considered in any rational world plain old accounting fraud, with mark-to-model and off balance sheet items galore. The point? The only P/E that matters is the one currently produced, the rest is all bull. The current P/E of 90 is roughly 5 to 6 TIMES higher than modern historic norms and is still far above the bubble heights of the tech bubble.

And our government keeps pouring the debt backed money into the system. Since current incomes cannot support current debts, as that debt money is funneled into the system, the vast majority of it simply is used to service already existing debt. Thus it is manufactured, but simply circles right back around to the bank who continually skims interest and fees as the money goes around and around in a circle, never creating a path through productive hands in the economy.

M1 Multiplier:

March Monetary Trends