"Clients Are Stretching To Find Reasons Not To Cut"

Citi’s Tobias Levkovich sums up the hope… “we have received a fair amount of questions from clients over the last couple of weeks about the effect of share buybacks supporting earnings in the coming year, almost as if they are stretching to find reasons not to cut their numbers.” The following charts suggest we are stretched indeed…

 

The Panic/Euphoria Model went into Euphoria 11 weeks ago and is still suggesting a better than 80% chance of a down market even from current levels…

 

The 4Q13 rally driven by liquidity and momentum had left investors feeling emboldened. Earnings estimate revision trends not support the run up in the S&P 500 last year as earnings and markets somewhat delinked

 

Investors were bullish and had bought into bottom-up annual Street consensus estimates in a way we had not seen before

 

despite the sharp spike in negative-to-positive pre-announcements late last year…

 

Even the bad earnings recession times of 2001-02 and 2008-09 did not show such a sharp takedown of numbers via preannouncements – and yet total ignorance by investors of that reality… The critical dynamic though has been guidance which has to be characterized as soft. The guidance numbers that we have collated show a clear downtrend

 

and the expected bottom-up consensus growth expectation are crumbling…

 

 

Perhaps Citi’s Tobias Levkovich sums it up best…

“Interestingly, we have received a fair amount of questions from clients over the last couple of weeks about the effect of share buybacks supporting earnings in the coming year, almost as if they are stretching to find reasons not to cut their numbers.”

But a glance at the following 3 charts should clarify that…

The average American is in trouble…

 

And appears unable to use the Keynesian wet-dream of credit expansion to to fix his ability to spend

 

And even corporates are not spending

 

On anything but buybacks…

Of course – what really matters is USDJPY 102…

 

As John Hussman noted this week, the problem is always that historical outcomes are easy to observe in hindsight, but the outcome of the present instance is still unseen – even if the underlying conditions are the same. As we saw in 2000 and again in 2007, until unseen risks become observable reality in hindsight (and by then, it’s too late), all of these concerns are quickly dismissed and ignored by investors.

Quantitative easing has distorted not only financial markets, but financial memory. The awakening is not likely to be gentle.

 

Charts: Bloomberg, Barclays, Citi, and @Not_Jim_Cramer

    



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