Toppy Tuesday – Pressing our Hedges (Just in Case)

S&P 3,000 – woo hoo! 

That's right, we're almost back to where we were last Summer, 50% higher than we were 4 years ago (that was 2,000 Foxies!) and 100% higher than we were 7 years ago (1,500).  In 2013, the earnings per share for the combined S&P 500 were $110.98 so we divide 1,500 by $110.98 and we get a price to earnings ratio of 13.51.

Then we take 2016, when the S&P earnings had bounced back to $101.08 and the S&P was at 2,000 and…. Ha, ha – I fooled you Foxies! – $101.08 is LESS than $110.98… just seeing if you could do the math there.  Anyway, we divided 2,000 by $101.08 and we see the P/E shot up to 19.78 – those are nose-bleed levels of valuation – even in a strong growth environment.

Still, the growth expectations were justified as Corporations no longer have to pay taxes or worry about destroying the environment and, in the golden age of Trump, earnings shot up to $140 per share last year and the S&P hit 3,400 – still with a p/e of 24.28 - as if this growth will go on forever.  Why, to keep that kind of growth up you'd have to PAY corporations tax money on top of the profits they make.

Guess what?  That's what we're doing!  The Goverment just borrowed $6Tn, mainly to give to large Corporations while gutting what few remaining regulations we had left AND they let 30M jobs be destroyed, loweing the cost of labor for the rest of this decade AND they lowered Corporate Taxes even further.  Mission accomplished indeed! 

With the S&P 500 back near 3,000, we can now divide 3,000 by 24 to see if we think we're at a realistic level of optimism.  3,000/24 for the Foxies is $125 and $125 is $15 less than $140 and $15/140 is 10.7%.  So, in order to be paying 3,000 for the S&P 500 companies as a group, we have to believe that this Global Pandemic did not disrupt corporate earnings by more than 10%.  How stupid is that?