Bernanke & Kuroda Capital LLC: Overweight S&P 500, 2013 Target 1950

Given that the Fed and the BoJ has our back (and will add a further $1.75tn or so to their balance sheets by 2013 year-end), we should expect US equity prices to rise to infinity and beyond. As one smart chap on the television noted, “stocks won’t go down again,” but given expectations for earnings in 2013 (which include the remarkable hockey-stick in Q4 – which surely would only occur if things were strong enough to warrant the Fed pulling back in a reflexive vicious circle), the S&P 500 will trade at a rather expensive 19.5x P/E at end-2013 (which we are sure we will be told is still cheap).


If it was just up to the Fed, the 1950 is an obvious target – dump your bonds and get some…


but the Europeans are seeing LTRO-payback reducing the size of their balance sheet and the Chinese are ‘anxious’ so factoring in the BoJ riding to the rescue as well, it seems a much more conservative 1900 target for S&P 500 is warranted by year-end…


The question is – at what point is an equity market multiple representative of exuberance and what if the correlation breaks – what if the herd realizes that none of it is wealth until you take profits. And with that kind of ‘wealth’ creation, will inflation pop up its ugly head?

Given correlations, Gold would trade at $2200 by year-end (and WTI Oil over $140)…

Charts: Bloomberg


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