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David Stockman: This Is ‘The Rigor Mortis Of A Dead Bull’
By David Stockman as originally published on Contra Corner and reprinted here with permission
That was quick. The trade war scare was over by noon yesterday, and by the market close they were singing "Gary Cohn, we hardly knew ya".
Folks, what more evidence do you need that the financial markets are completely uncoupled from reality and that these feeble bounces between the 50-day and 20-day chart points are essentially the rigor mortis of a dead bull?
At the moment, the 50-day st
Wow! Enough bold numbers, and I will be convinced to completely liquidate!
Stockman makes a cogent argument. We certainly may be at the end of the long bull run, and the volatile, chaotic, seemingly cataclysmic unwind may be at hand. There are certainly more than a handful of data points that support this narrative, and not a trifling sum of intelligent individuals who’ve accumulated significant wealth would agree.
I do think SOME caution is warranted, however, if only for the reason of providing ourselves with a counterpoint in order to stress-test thought processes.
As a very simple, and admittedly limited, exercise I pulled up the S&P 500 earnings data, as presented by NYU Stern (via Bloomberg, or so they report) going back to 1960. Between 1960 and 2017 there are 13 instances where the trailing 5-year earnings growth rate on the S&P 500 is 15% or less (including negative figures). For reference, using the earnings figure for 2017 reported by Stockman of 109.46, the 5 year earnings growth total in 2017 is 13.05%. Now for the 13 instances just mentioned: in 10 of the 13 observations, the total return of the S&P 500 over the NEXT five years is positive. The median 5-year total return during these subsequent periods is 66.9%; the mean is 58.8%; the high is 163.5%; the low is -19.4%.
Again, arguments can, and surely will, be made that history back to 1960 isn’t representative of the long-term financial cycles that play out in markets; you could even argue that only 2 bond cycles – a pronounced bear followed by a pronounced bull – occurred over this near 60 year observation period. All valid arguments that potentially invalidate, or at least debase the above figures. And if Stockman is correct that the 10 year is moving north of 4%, perhaps even meaningfully higher, then this simple analysis may even be quite useless altogether, if it isn’t already.
I do think, however, that one should be cautious to take Stockman’s, admittedly compelling, arguments as gospel. Complex systems are, in my not so humble opinion, intractably, incomprehensibly, indiscernible in real time. Ex-post narratives always make for good reading down the line, but the truth is that the world rarely unfolds as we predict, and even when it does, the outcomes of a series of events we correctly foresaw may still be different than what we predicted, materially so. That’s what makes the game so much fun.