Mr. Sensitive

October 18, 2013

FSX Friday Update

Filed under: Uncategorized — lbej @ 19:17

Oh boy—here we go.  With the shutdown/debt ceiling circus over, the market is focusing on Q3 earnings, and earnings so far are exceeding expectations.  Never mind that these earnings ‘beats’ are largely because companies have guided expectations lower over the last few months due to ‘uncertainty,’ because the market has had enough negativity.  Never mind that stock prices weren’t even dented during the tea-fueled drama, because now we’re talking about multiple expansion.

Uh-oh.

What is multiple expansion?  It’s how Wall Street puts a positive spin on investors paying more for the same earnings.  Why would you pay more for the same earnings?  You wouldn’t, obviously, not if I put it that way.  Would you embrace multiple expansion?  You just might.  This is what happens at a cyclical market top, folks: earnings growth is slowing, and analysts and strategists start telling you it’s safe to pay more for earnings at exactly the moment you should be paying less.  Why can’t the market trade at 20 times earnings? the bulls ask.  Well, it can, obviously.  But should it?

Nope.

15 is a normal multiple; 17-18 is the high end of the historical valuation range (excluding the 2000 bubble).  The economy is growing at 2-3 percent in the US, lower in Europe, and slightly higher (albeit with lots more volatility) in the developing world.  US multinationals have outsourced everything they can and wrung virtually every bit of expense bloat out of their global operations.  This is admirable, of course, but it can’t go on forever, and once you can’t cut costs any further, you can’t grow profits faster than revenues.  Long-term, the largest companies in the world can’t grow revenues significantly faster than the underlying economy is growing.  So you want to pay 20 times current earnings for a growth rate of five percent?  Count me out.

That said, stocks are going up through the end of the year, and the really overextended stocks (TSLA,FB,CMG,NFLX,PCLN,etc.) will lead the rally—you can book it.  Fund managers are lagging their benchmarks and they are going to have to chase performance, meaning crowded trades will just get more crowded.  Twitter is coming public, as is Alibaba, a Chinese e-commerce company that will be the biggest IPO in history (valuation of $150 billion or so).  1850 on the S&P 500 is easily achievable by year-end.  Then we’re in for a rocky 2014.

The Family Stock Index hit yet another all-time high this week, the first in over a month.  The FSX jumped 3.3% to close at 16,876, advancers clobbered advancers 22 to 2, and we’re now up more than 25% for the year.  I don’t know what to tell you, honestly.  We better have some stellar developments over the next six months or so, otherwise we’re 2000 points too high.

No pressure, though.

(In case it wasn’t totally clear, all the stuff above was written by Lee. But maybe you can believe it was me, Ultra Katie. I’m doing the Advancers and Decliners for real though.)

Advancers

  • Ruby (RJET) +7.7%. Mom is practicing for the new career she can start when she retires: toddler hair-cutter. She practiced on Brinkley last weekend, and she’s obviously already a pro. She may need to get some sharp scissors though.
  • Zero (ZAGG) +7.7%. Zero gave Charlotte food poisoning so she could spend some extra special time at home with him this week. Probably because he wanted to watch Scandal too.
  • Lucas (LEI) +7.6%. I didn’t officially measure or anything, but I think it may be that Lucas is finally both taller and heavier than Jenny. It’s only taken 14 years.
  • Brinkley (BCO) +6.4%. Brinky’s enjoying his new haircut because he can see everything again now that his bangs are no longer in his face.
  • Jodi Ann (JOY) +5.7%. Lee has come up with a middle name for your baby. (Maybe you’ve come up with one too.) Pistachio. Josephine Pistachio.

Decliners

  • Nicole E. (NICE) -1.5%. I’m hoping things will start looking up for Nicole now that the government shutdown is over. I know she’s also a little sad about not spending Halloween here, but I swear we’ll take pictures, and Jenny’s planning to ignore us all anyway.
  • LULU -2.9%. Lulu is a fat cat. Lee asked me to get him a water gun last week so he can spray her when she comes in and loudly meows in anger. I don’t think she’s going to enjoy it.
Name Ticker 10/18/2013 Change
Brinkley BCO $29.47 +1.76
Charlotte ICE $198.22 +3.54
Dustin DST $79.55 +1.93
Ghost Marisa MOLXA $38.46 unch
Icarus FAST $49.20 +1.89
Jenny JNY $15.00 +0.40
Jodi Ann JOY $54.20 +2.91
Justin SCI $19.08 +0.43
Katie CATY $24.69 +0.68
Lee TGI $72.35 +1.78
Lisa LNCE $29.67 +0.10
Lucas LEI $1.28 +0.09
Lulu LULU $72.75 -2.20
Marcus MCS $14.27 +0.15
Mario T.E. MGEE $55.83 +1.16
Mario T.Y. MAR $43.50 +1.20
Namilita NL $11.45 +0.18
Nicole E. NICE $40.54 -0.61
Nicole M. COLM $62.88 +1.91
Reagan REGN $303.56 +13.26
Ruby RJET $11.75 +0.84
Wilson WILC $7.39 +0.24
Winston ED $56.86 +0.60
Zero ZAGG $4.78 +0.34
Zondro ZQK $7.45 +0.37

 

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