PEmax eliminates distortions in the price/earnings multiple caused by sharp falls in earnings during recessions. It uses the highest trailing earnings rather than simply the most recent earnings. This provides a better estimate of future earnings potential than using more recent results during a market downturn.
The current PEmax of 26.93 in the graph above, uses the index at December 31, 2020 and the highest trailing earnings of 139.47 for the 12 months ended December 2019. Using expected earnings of 95.22 for the 12 months ended December 2020 would yield an even higher PE ratio….
Biden’s First Spending Blowout
From the WSJ Editorial, 16 January 2021:
…“With interest rates at historic lows, we can not afford inaction,” President-elect Joe Biden declared Thursday night. He wasn’t kidding as he outlined a $1.9 trillion Covid spending plan, which comes on top of the $900 billion Congress appropriated last month, and the $2.9 trillion in the spring. And this is only Mr. Biden’s “first installment,” as Sen. Bernie Sanders put it.
…this blowout has nothing to do with economic stimulus. Nearly all of the money is for income redistribution—some to people in genuine need, but most to advance long-term Democratic social policies, and to massage con-stituencies like teachers unions and state politicians.
… Mr. Biden proposes $70 billion for vaccines, therapies and testing in addition to the $42 billion that Congress passed last month.
Most of the rest of the Biden plan is a repeat of the 2009 Obama plan—doubled. State and local governments will get $350 billion, though many have more revenue than before the pandemic thanks to buoyant equity and housing markets…
Mr. Biden also wants to raise [both unemployment benefits and] the minimum wage … It’s hard to imagine a more destructive policy for small businesses struggling to survive, especially in rural areas and mid-America states with lower wage levels than New York City. The strange economic logic seems to be to make it more expensive for businesses to rehire workers while giving those workers less incentive to return to work.
He also wants to expand the earned-income tax credit for childless adults, a …child tax credit …a larger ObamaCare premium tax credit and a $4,000 child-care tax credit. This is Democratic social policy traveling as temporary Covid relief. Don’t be surprised if the tax credits all become permanent features of the tax code—and a disincentive to earn more at the risk of losing the credits as they phase out.
An Old Foe of Banks Could Be Wall Street’s New Top Cop
From WSJ, 16 January 2021, by Paul Kiernan and Scott Patterson:
Gary Gensler [who ran the Commodity Futures Trading Commission from 2009 to 2013] is expected to be Joe Biden’s pick to take over the Securities and Exchange Commission. ‘He will do things that are controversial.’
…The finance industry has thrived under the Trump administration’s light regulatory touch. Mr. Gensler, who sources familiar with the transition say is likely to be tapped by Mr. Biden for SEC chairman …would be tasked with toughening regulation and enforcement of public companies and the finance industry.
… Lawyers, regulators and lobbyists say Mr. Gensler would likely be the most active, pro-regulatory SEC chairman since … the early 2000s… They also expect a renewed eagerness to pursue enforcement cases against major corporations and Wall Street banks. …Mr. Gensler earned a reputation for an aggressive, sharp-elbow style of management more reminiscent of Wall Street than Washington, at times even clashing with officials in his own party.
Mr. Gensler’s record …fits with the Democratic Party’s progressive wing, which hopes to use the SEC as a lever for driving domestic policy goals. These include combating climate change and racial injustice, forcing more transparency around corporate political spending and tilting the balance of power from executives to workers and small investors…
Fed Reinforces Plans to Provide Open-Ended Stimulus to Spur Recovery
The Wall Street Journal reports that most central bank officials project interest rates will remain near zero for at least three years.
(What do you think this will do to the price of gold??)
Fed officials slashed their short-term interest rate to near zero in March as the coronavirus pandemic disrupted financial markets and the economy. They also launched an array of emergency lending programs and began large-scale purchases of government debt and mortgage securities.
On Wednesday, officials updated their formal guidance around how long those purchases would continue…
The Fed has been buying $80 billion in Treasurys and $40 billion in mortgage bonds a month since June while pledging to maintain those purchases “over coming months.” On Wednesday, the central bank stated those purchases would continue “until substantial further progress has been made” toward broader employment and inflation goals. Officials don’t expect to reach those goals for years, according to projections they released Wednesday.
PHOTO: DANIEL ACKER/BLOOMBERG NEWS
Iron Ore & China: dependence: no other words needed
Goldman Sachs acquires Perth Mint Physical Gold ETF
From ETF Strategy, by James Lord, CFA | Category: Commodities:

Goldman Sachs Asset Management has entered into an agreement to acquire the $500 million Perth Mint Physical Gold ETF (AAAU US).
The fund, which will be GSAM’s first commodity ETF, currently provides exposure to physical gold [held] and guaranteed by The Perth Mint, a wholly owned subsidiary of the Government of Western Australia.
…The ETF will remain listed on NYSE Arca and its ticker will be unchanged.
However, the mint will no longer act as custodian, with a new third-party custodian, as yet undisclosed, set to be appointed.
Michael Crinieri, GSAM’s Global Head of ETF Strategy, commented, “Our team aimed to respond to investor demand for an asset class that has demonstrated resilience and popularity …
“Our goal at GSAM is to continue to give investors thoughtful and cost-effective ways to diversify their portfolios, and we believe this fund is an attractive addition to GSAM’s growing ETF suite.”
AAAU …is one of the lowest-cost gold ETFs in the US with an expense ratio of just 0.18%…
Proposed US Trade Alliance
WSJ reports that Trump wants to create an informal alliance of Western nations to retaliate when China uses its trading power to coerce other nations.
The US Administration conceived the plan in response to Chinese economic pressure on Australia after the Australian government called for an investigation into the origins of the Covid-19 pandemic.
“China is trying to beat countries into submission by…economic coercion,” said one senior official. “The West needs to create a system of absorbing collectively the economic punishment from China’s coercive diplomacy…”
Under the plan, when China boycotts imports, allied nations would purchase the boycotted goods or provide compensation. Alternatively, the group could jointly agree to assess tariffs on China for the lost trade.
How do you measure performance?
Colin Twiggs points out that the S&P 500 is apparently booming, but performance measured in Gold rather than Dollars, tells a different story, with the S&P 500 starting a down-trend in late 2019.
Stock prices are inflated and investors buying stocks at these levels are likely to realize poor returns…
Attack of the Zombies
From Bloomberg, 17 Nov 2020, by Lisa Lee and Tom Contiliano:
…many of the nation’s most iconic companies aren’t earning enough to cover their interest expenses ( …zombie status).
Almost 200 corporations have joined the ranks of so-called zombie firms since the onset of the pandemic… In fact, zombies now account for nearly 20% of [the top 3,000] firms.
… they’ve added almost $1 trillion of debt to their balance sheets… bringing total obligations to $1.36 trillion. That’s more than double the roughly $500 billion zombie companies owed at the peak of the financial crisis.
The consequences for America’s economic recovery are profound.
The Federal Reserve’s effort to stave off a rash of bankruptcies by purchasing corporate bonds might very well have prevented another depression. But in helping hundreds of ailing companies gain virtually unfettered access to credit markets, policy makers may inadvertently be directing the flow of capital to unproductive firms, depressing employment and growth for years to come…
A representative for the Fed declined to comment…
Asia signs on…
From The Australian, by Amanda Hodge:
Thai Prime Minister Prayut Chan-O-Cha beside Prime Minister Scott Morrison and Japan’s former Prime Minister Shinzo Abe at the 2nd Regional Comprehensive Economic Partnership summit (RCEP) in 2018. Picture: AFP
An Asian mega trade pact representing to 30 per cent of all global output is to be signed into force this weekend …amid [China’s] ongoing trade war with the US, and as its neighbours seek to diversify supply chains outside China’s sphere.
All 10 ASEAN nations, plus China, Japan, South Korea, Australia and New Zealand, are expected to sign off on the Regional Comprehensive Economic Partnership (RCEP) agreement …
China’s determination to drive RCEP into force [is] a response to the Obama administration’s TPP (…Trans-Pacific Partnership), which deliberately shut Beijing out of the world’s then biggest proposed trade deal.
Instead, the US finds itself on the outside of both pacts (Australia is in both)…
The new RCEP bloc… seems also to run counter to recent political rhetoric in Australia, Japan and India around efforts to ….diversify supply chains away from China.
Instead, analysts expect the deal to strengthen trading ties between China, ASEAN and the other members …
Whether that will help ameliorate the escalating bilateral trade and diplomatic tensions between Canberra and Beijing remains to be seen.
… ANU emeritus professor of economics Hal Hill told The Weekend Australian that RCEP was unlikely to change much..
“We have (our own free trade) agreement with China which, in the current environment, appears to be non-functional.”
While some modelling has suggested China could gain as much as $US100bn a year by being in the bloc, and Australia up to $US1bn a year, Professor Hill said RCEP was likely to be of only “marginal benefit”.