Heisenberg Report

‘These Go To 11’: SocGen ‘Goes There’

Well, SocGen’s Andrew Lapthorne is out on Monday morning with his weekly dose of reality for the ebullient bulls and this week, he’s “going there” – he’s using the Spinal Tap reference:

That’s right, “these go to 11” and in this case “these” refers to the entire damn world, because as Andrew notes, “global equity markets rose 2.1% in September, with MSCI World surpassing 2000 for the first time and in turn delivering its eleventh successive month of positive total returns.

This is the second longest stretch of consecutive gains for the MSCI World since its formation in 1969:

So is this justified by the fundamentals? In a word (or eleven): “no”. Here’s Lapthorne again:

The bulls will claim that this latest rise in equity markets has been supported by resurgent profits, and they would not be wrong. MSCI reported profits rose by 20% over those 11 months and the actual reported P/E has fallen a shade. However, EPS levels are merely back to where they stood in November 2014, when MSCI was 15% lower, and overall profits have yet to exceed 2008 levels when the index was a third lower. Essentially QE sustained equities levels in anticipation of a profit recovery, but rather than de-rating as those earnings came through, markets are simply being propelled to ever higher levels. The equity valuation problem was created during the 2011-15 era when global profits went nowhere, yet equities rose 30%.

There you go. So how can things possibly get any better for equities from here in the absence of a scenario where the world finally “grows” into a market created by QE (i.e. in the absence of the fundamentals catching up to valuations)?

Well, everyone could simply go the Kuroda route:

“Does that mean it’s more effective?”

“Well, it’s one louder, isn’t it?

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