Interview with Snoop
Editor's Note: The following discussion took place on today's Buzz when Snoop Tony Dwyer of FTN Midwest Securities swung by MVHQ for SushiThursday. As we strive to provide both sides of the ride, we wanted to share the exchange with our fellow Minyans.
Toddo: I know you're bullish, but aren't you making the assumption that the past is a prelude to the future? What about multiple contraction?
"We've already seen a contraction in the S&P from 30x (in 2000) to 14x '06 bottoms up estimates. The bears are fighting a battle that they've already won."
Toddo: You're making a pretty liberal assumption that earnings estimates will come to frution. But lemme ask you this: are you allowing--at all--for the distinction between legitimate growth and debt induced largesse? At what point does the 350% total debt/GDP "matter?"
"The interesting thing about debt is that while the absolute amount has accelerated to the upside over the last 20 years, the servicing of that debt continues to trend lower over the same period because of the secular decline in interest rates. Therefore, looking at debt in a vacuum may be misleading."
Question: The market is a leading indicator. By the time that trend changes, equites will already reflect that dynamic. How can we stay ahead of the curve when using lagging (or coincident) indicators to base our assumptions?
"Extroplating data is better than "guessing" when the trend is gonna change. I have a very clear "out" to define when I'm wrong: When the core CPI rises enough to invert the yield curve, which historically has turned the direction of profits (negative).
S&P price correlates to S&P earnings over the last 25 years. When the trend of earnings reverse negative (2000, 2001), it offers a clear signal to reduce equity exposure. Right now, there's no sign that the core rate will move up enough to invert the yield curve (3 mo/10 yr).
Now...are you gonna finish that sashimi?"
Thanks Snoop--appreciate your time and I look forward to seeing you at Minyans in the Mountains II!
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