03-26-2014, 08:37 AM
Regardless of the reason, I think the observation has merit. I was listening to a Bloomberg piece the other day, and made a post regarding the effect of buy backs on per share growth, versus real overall earnings growth. Anyway the main point from that conversation lies in the fact that earnings growth for almost half of the S&P500 has been poor quality growth coming from share buy backs rather than coming from true earnings growth. There has also been much conversation related to the fact that many companies are not investing in growth, and that favorable stats continue to come from cost cutting which at this point may be something kin to various companies cannibalizing themselves such that future earnings growth may be hampered. IMO there seems to be a widespread practice of making expedient, short sighted decisions. Decisions that may only feed the anemic levels of GDP growth of the past few years.
My main questions can't be answered until things gradually unfold. How much of current business profits are a result of QE's low rates, easy money, and bond support? How much of current market valuation is a result of yield chasing by those who were previously the fixed investment income crowd? IMO we won't know those answers until the fed starts to normalize rates and until the retired community starts to move assets back to more normal allocations. I do believe that the shift out of equities will be swift and brutal, whenever the time comes. I also believe that p/e ratios will rise dramatically for various companies which get hit by significantly higher borrowing costs. If such is in the future, it would be prudent to have a list of companies whose debt is long term and fixed, such that any impact would be very gradual and spread over decades. Those companies will be taken down as well, and will most likely represent very good bargains at the time. Many of the DG types of stocks probably fit that profile.
My main questions can't be answered until things gradually unfold. How much of current business profits are a result of QE's low rates, easy money, and bond support? How much of current market valuation is a result of yield chasing by those who were previously the fixed investment income crowd? IMO we won't know those answers until the fed starts to normalize rates and until the retired community starts to move assets back to more normal allocations. I do believe that the shift out of equities will be swift and brutal, whenever the time comes. I also believe that p/e ratios will rise dramatically for various companies which get hit by significantly higher borrowing costs. If such is in the future, it would be prudent to have a list of companies whose debt is long term and fixed, such that any impact would be very gradual and spread over decades. Those companies will be taken down as well, and will most likely represent very good bargains at the time. Many of the DG types of stocks probably fit that profile.
Alex