APPLES TO APPLES?
Courtesy of The Pragmatic Capitalist
Excellent thoughts here from David Rosenberg on the comps between this upcoming October and last October:
The ongoing rally in the S&P 500 has taken the index all the way back to where it was last October. This prompted Brad Dunkley, one of our senior PMs, to email me this little ditty:
“I call this the Bobby Ewing market. Remember when Bobby appeared in the shower and the entire last season was just a dream? That’s what people are saying, what Recession? It never happened.”
Indeed, let’s compare the economic background last October compared to today:• The unemployment rate was 6.6% then, today it is 9.4%
• The level of employment (nonfarm payrolls) was 136.35 million; today it is nearly 4.0% smaller at 131.5 million
• The level of nominal GDP was $14.347 trillion; today it is $14.143 trillion
• The level of real GDP was $13.149 trillion; today it is $12.892 trillion
• The 4-quarter trailing operating EPS was $49.50; today it is $39.90.
• The 4-quarter trailing reported EPS was $14.90; today it is $7.90.
• The dividend yield was 2.9%; today it is 2.3%
• The P/E ratio (operating earnings) was 19.6x; today it is 25.2x
• The “real” yield (5-year TIP), which is a bond proxy for “real” growth expectations was 3.0% back in October; today it is 1.7%
• Industrial production was 106.2 (index); today it is 10% smaller, at 96.0
• Industry wide capacity utilization rates were 75.4% then; they are 68.5% today
• Manufacturing inventory-to-shipments ratio was 1.33 back then; now it is at 1.42
• Housing starts were 763k (annualized) units; today even with the recovery they are 581k (24% smaller)
• Commercial construction was $729 billion then, it is $712 billion today
• Oil prices were $71/bbl then, about where they are today
• The “real” yield on the Baa corporate yield was 5.2%; today it is 8.6%
• Bank credit was $9.5 trillion back in October; it is $9.2 trillion today
• The federal deficit was running at a $550 billion 12-month run-rate; today it is $1.3 trillion
• Corporate spreads were 450bps back then; they are 300bps today (this, along with ISM, home sales and consumer confidence polls, are better, and that’s about it).At least we can say with some certainty that the 50%+ rally is divorced if not separated from the economic realities we listed above.
