May 2014


Armo has a post out looking at the market relative to earnings.


The argument which relates to the earnings chart is this one:

And on top of that, the $FED is tapering with the expected plan of ending purchases near the end of the year. So unless the market is completely irrational and can’t price that information in, the argument that the Federal Reserve is blowing a bubble is just ludicrous.

The Fed, through a number of QE operations has significantly expanded its Balance Sheet. It is a question of causation, viz, did the expansion in money supply cause the increase in earnings? If the answer is yes, then, will a contraction in the money supply cause a decrease in earnings?

If the money supply increased by any arbitrary number, say 10% compounded per annum and the market share of a company remained constant, would revenues increase? Conversely, if the money supply growth was reduced, would revenue expansion slow?

Taking AMZN as an example.

chart (1)

Certainly the correlation looks strong on an annual basis during the expansionary years. With the contraction, the lag is apparent but can be seen more clearly in the quarterly data:


Of course one example is hardly conclusive of anything.

chart (2)

chart (3)

Of the more than 1,500 companies that have reported earnings so far [Q1 2014] this season, 60% have beaten earnings estimates and 56% have beaten revenue estimates. Below is a look at the earnings and revenue beat rates by sector.

beat rates 2014

eps revs

On the evidence, as QE expanded, so revenue growth expanded. Now with QE contraction, so revenue expansion is slowing. The market which anticipates and moves faster, is potentially ready to reprice…hence the sideways movement.

If the trend lower in revenue growth continues, and the market valuation is staying high, the repricing will likely be lower as the market reverts to lower earnings growth.

So in answer to his question can it get better? Yes, it could be a lot better. QE tapering is not bullish.



I have just added this bank to the portfolio. In addition I closed out my AAPL position. Not quite a swap, but 50% of the price came from the AAPL sale.



Well I would have said that BAC had no chance…but with only days left to trade, could it make $16 and close the gap?



Might add this to the portfolio.




Doesn’t look like it will hit $16 never mind $17. I’m glad that I covered the downside that will provide a profit, just not enough to be purchasing motorcycles with.


Giving old mice blood from young mice can reverse age-related impairments in learning, memory and neuronal function, according to US research.

These findings, published in the journal Nature Medicine, suggest that circulating factors from young blood could reverse the effects of aging in the brain.

Future studies in humans are necessary before similar conclusions can be made about effects in people.

A second set of studies in the journal Science joined a young and old mouse together with a single circulatory system and found that age-related impairments and DNA damage in the muscle stem cells, or satellite cells, of the older mice were reversed.

Tony Wyss-Coray of Stanford University and colleagues found that repeated injection of blood from young, three-month-old mice into old 18-month-old mice can improve their performance in learning and memory tasks.

Heating the blood, which alters the structure of its proteins, before injecting it into older mice abolishes these effects, suggesting a circulating heat-sensitive factor reduces these positive effects.

The aged mice showed a reversal in age-related impairments in their brains at the structural, molecular and functional level.

Of course as blood cells have a 90 day life span this [potentially] would mean a transfusion every 90 days at minimum.

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