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The Great PE Multiple Expansion Of 2011-2014: Why The Market Must Eventually Crater

The earnings season is all over except for the shouting, but the outcome doesn't remotely validate Wall Street's happy times narrative. Reported Q4 earnings for the S&P 500 companies (with about two-thirds reporting) stand at $25.02 per share compared to $26.48 in the year ago quarter. That's right. So far Q4 profits are down 5% but shrinking corporate profits is something that you most definitely have not heard about on bubble vision.

That's because the talking heads invariably reference "adjusted" or "ex-items" earnings, which, almost by definition, exclude charges for every imaginable business mistake and bonehead executive action--such as soured M&A deals and "restructuring" expense-- that could possibly cause earnings to go down. For the four-year period 2007-2010, as I outlined in the Great Deformation, the ex-items profit figure hawked by the Wall Street analysts was a cool one-half trillion dollars or 30% higher than the GAAP profits reportedRead More …