I feel like I’m going crazy here but the facts are the facts.
So far with about a third of companies reporting earnings growth is coming in around 12%, sounds good but in q2-q3 we were growing earnings 24-25%
This slowing in rate of change terms is significant. Couple this with the jobs report which shows wage growth. As revenues slow and wages go up, margins are squeezed and profits fall.
economic cycles typically follow a sine curve and right now we are on the downward slope.
Now take earnings in 2001-2 slow down we saw a similar progression 23% in q3 2000 to 16% q4 2000 to 1% in q1 2001 then to -13 in q2 2001, and -18 in q3.
These cycles happen. Anyone who tells you the absolute growth rate matters is blowing smoke. If you have a company earning 24% than it earns 12% do you think it’s worth more or less making 12% than when it was making 25%? Not to mention if you map the broader moves you can start to see where the economy is headed and it’s not on the fun side of the sine curve if you’re long the market.
Now this said what good is this if you don’t have a way to play it. It’s simple, treasuries. IF the market does well it’s because the fed stays dovish and bonds rally. If the market tanks the fed eases and bonds rally. Either way you want to be long bonds and out of equities.
Submitted February 02, 2019 at 12:03AM by RLWSNOOK http://bit.ly/2WBo6DN
