World View: Stock Market Share Prices May Go Parabolic
- Stock market share prices may be going parabolic
- Facebook users reveal a great deal of personal information about themselves
- Chávez's death may cost Russia tens of billions of dollars
- International Criminal Courts drops charges against Kenya official
Stock market share prices may be going parabolic
New York Stock Exchange
Long-time readers are aware that on a dozen or so occasions, I've
transcribed the words of several of the most prestigious financiers
appearing on CNBC and Bloomberg TV and pointed to specific lies. (See
"World View: Libor-rigging scandal and lying on Wall Street" from last
In most cases, the lies are about the S&P 500 price/earnings ratio,
also called "valuations." In order to encourage investors to buy
more stocks, they openly lie about stock valuations, often claiming
that stock valuations are at historic lows, whereas in fact they've
been at historic highs continuously since 1995. By the Law of
Mean Reversion, stock prices are going to fall to below Dow 3000,
and stay there well into the 2020s.
The Wall Street Journal addressed this situation on Monday:
That earnings came in a few percentage points higher than analysts
had expected also isn't as impressive as it seems. In a typical
quarter, more than 60% of companies "beat" the consensus, a ratio
of about 3 to 1 over those that "miss."
What may be more significant is the guidance that some companies
gave about the current quarter. According to Thomson Reuters, the
ratio of negative guidance to positive was an unusually high 4.1
to 1. As a result, earnings growth for the first quarter is
expected at just 1.4%. That would be the second-weakest
performance since 2009.
Earnings can be volatile, even for the entire market. That is why
revenue deserves more attention than it sometimes gets—and it
provides scant reassurance.
After falling slightly in the third quarter, the S&P 500's revenue
grew by an estimated 3.7% in the fourth quarter and is expected to
grow by just 1% in the first quarter. The implication is that much
of recent earnings growth relies on expanding profit margins.
Those already are above historical averages, though. The S&P 500's
price multiple of trailing 12-month earnings is nearly 18. That
multiple would rise into the low-20s if margins reverted to past
Investors seem unconcerned, but they are paying prices today that
assume a lot more great quarters.
In other words:
- Fourth quarter earnings were slightly higher than expected.
- Even fourth quarter earnings are low by historical standards.
- First quarter earnings are expected to be substantially lower.
- The S&P 500 P/E ratio is almost 18, far higher than the historical
average of 14, indicating that stocks are far overpriced.
- First quarter earnings will push the P/E ratio into the low 20s,
the astronomical levels that preceded the stock market crisis of
- Investors appear to be totally oblivious to what's
The recent rise in Wall Street prices is extremely alarming, because
they've been rising rapidly since the December fiscal cliff and
sequester crisis was postponed, apparently convincing investors that
anyone who expressed any concern was wrong. The
rise may even be accelerating to parabolic levels, indicating that the
hard crash, which must occur sooner or later, may be close. WSJ
Facebook users reveal a great deal of personal information about themselves
Researchers at Cambridge University's Psychometrics Centre have
developed computer algorithms that gather a great deal of personal and
information from Facebook "likes" from people's profiles, including
- 95% right distinguishing African-American from Caucasian.
- 85% accurate distinguishing Republican from Democrat.
- 88% accurate determining male sexuality
- 65-73% for relationship status and substance abuse.
- 60% for whether parents separated.
A lot of the data is inferred. For example, the algorithms infer
whether the person is gay from his "likes" for music and TV shows.
Chávez's death may cost Russia tens of billions of dollars
The death of Venezuelan President Hugo Chávez has put into jeopardy
tens of billions of dollars in contracts that Russia had signed with
the purpose of giving financial support to the socialist anti-American
leader Chávez. Chávez was personally behind all the major projects
with Russia in energy, transportation, weapons purchases, and banking.
But now Russian officials fear that the new president will turn to
China for military and technical cooperation or even the United
States for other investments. Venezuela is deeply in debt to Russia,
and with Chávez gone, much of that debt may have to be written off.
The first signs of trouble have already occurred: Although Russian
president Vladimir Putin called Chávez a "big friend of Russia," Putin
only sent a low-level delegation to Chávez's funeral, headed by a
businessman, Igor Sechin. On his way to the funeral, Sechin
stopped in Houston, Texas, in order to convince U.S. investors to
financially back Russia's energy firm Rosneft.
What irks Putin most,
however, was Chávez’s natural ability to connect with his electorate,
while no amount of political "technologies" could check the alienation
of Russia’s scandalously corrupt elites from the "masses."
Moscow Times and Jamestown
International Criminal Courts drops charges against Kenya official
As we reported last month, dozens
of Kenyan witnesses who were expected to testify against Kenyan leaders
being charged with crimes against humanity have been disappearing and
are presumed dead. Three Kenyan officials, including the
president-elect Uhuru Kenyatta, are expected to go to trial this
summer at the International Criminal Court (ICC) in the Hague. The
charges stem from the bloodbath that occurred after the December 2007
elections, where death squads killed more than 1200 people and
committed multiple atrocities, including torture, rapes, mutilations, and
But now the ICC has dropped charges against one of the
officials, retired Public Service head Francis Muthaura, saying that
key witnesses had either been killed, died, bribed, or were too
afraid to testify. The prosecutor also accused Kenya of being
uncooperative, refusing to provide required witnesses and documents.
It's not known whether the charges against Kenyatta will have to
be dropped as well.
The ICC charges appear to have done Kenya a favor by reducing the
chances of a new ethnic bloodbath following the current elections.
Ethnic battles in Kenya stem from conflicts over land, as populations
for different ethnic groups continually grow and occupy each other's
farmland and grazing fields; land is usually the biggest issue in
elections. But in this election, the land issue was in second place
behind the ICC charges issue. The ICC charges polarized the
traditional supporters of each candidate, but the middle ground swung
over to Kenyatta's side, since many Kenyans view the ICC as favoring
the West and biased against Africans. The Nation (Kenya) and Daily Monitor (Uganda)
KEYS: Generational Dynamics, stock market, earnings,
Law of Mean Reversion, Facebook, Hugo Chávez,
Venezuela, Russia, Vladimir Putin, Igor Sechin, Rosneft,
Kenya, International Criminal Court, ICC,
Francis Muthaura, Uhuru Kenyatta
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