- Households own $20.5 trillion of residential real estate, even after the value destruction of the past three years.
- Households own $8.8 trillion of equities, despite the vicious bear market.
- Households own a record $7.7 trillion of deposits and cash – earning next to nothing in yield.
- Households own $4.1 trillion of consumer durable goods.
- Households own $1.6 trillion of corporate bonds.
- Households own $960 billion of municipal securities.
- Households own $920 billion of agency paper.
- Households own $273 billion of treasury notes and bonds.
It is possible to envision that as baby boomers seek stability and income, unable to rely on traditional pension funds, retirement accounts and a rapidly depleting Social Security basket, that more assets will shift to this last category. Of course, this will be at the expense of the $7.7 trillion in cash and deposits and, much more so, a transfer from the $8.8 trillion in equities which have demonstrated unprecedented volatility and riskiness, as more people shun this asset class entirely. Ostensibly, this is not a good datapoint for all those pricing in a bull market and working off of 2011 earning numbers.
At yesterday's S&P closing level, the market was discounting a return to $70 earnings based on historical multiples. Rewind to March 9th lows, when based on the relationship between the fair value P/E multiple and the real Baa corporate bond yield, the S&P was priced for $55 in EPS, which would be high for 2009 but roughly in line for 2010 estimates. Fast forward to this past weekend, and the market was discounting $70 earnings, which is a) 75% higher than Merrill Lynch's 2009 earnings forecast and b) 30% higher than the bank's 2010 forecast, and 10% higher than the bullish consensus forecast. The $15 increase in earnings upside over a mere 3 weeks seems like a very aggressive (and likely myopic) shift in optimistic and perception. S&P over 800 is essentially assuming smooth macroeconomic sailing from the end of 2009 all the way into 2011, and not even pricing in a significant discount factor. Zero Hedge remains skepitcal on the viability of this assumption. Sphere: Related Content Print this post