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From Bloomberg: Stock Valuations Highest in Europe Since 2004 After April's Record Rally

May 5 (Bloomberg) -- April’s record rally in European stocks pushed market valuations to the highest level in more than four years as investors bet the first global recession since World War II is easing.

The 13 percent advance in the Dow Jones Stoxx 600 Index last month sent the measure to 16.2 times its companies’ earnings, according to data compiled by Bloomberg. Forecasts for 2009 profit growth in the gauge fell to 18 percent on May 1 from 22 percent a month earlier, the biggest drop this year, after earnings declined 40 percent in 2008, according to data and analysts’ estimates compiled by Bloomberg.

Equities may rise more as investors who missed out on the last two months’ gains spend money on stocks, said Anders Lorentzen, a fund manager at DiBa Bank A/S in Naestved, Denmark. Allianz Global Investors and Societe Generale SA say the rally may lose steam because Europe’s economy is forecast to contract by 4 percent this year and the market is being led by businesses with the highest debt and lowest returns on capital...

Also from the same source: S&P 500 Recovers From 25% Plunge as U.S. Company Profits Exceed Forecasts

 I have not come across one, that's right now a single one, earnings release this quarter that didn't attempt to employee a shenanigan, sleight of hand, trick, ambiguity, or outright lie in an attempt to improve the perception of the earnings outlook. As a matter of fact, the quality of earnings, or lack thereof, is quite telling. I know everyone doesn't carry analysts and forensic accountants in their back pockets, but that is what blogs like this are for. It is absolutely amazing that we are actually trying to recover from the housing and credit bubbles that very recently popped, which were caused by the low interest rates to pull us out of the tech bubble that blew up, and he we are back in an equity bubble - with negative or near negative real interest rates. What is to become of this? How many really think this is a good thing? What is wrong with letting assets deflate and inflate along the business cycle? Do investors ever tire of Boom and Bust speculation? 


Think about it. Earnings are shrinking, significantly. Credit has all but disappeared. Balance sheets are far from their best. Prices are skyrocketing. See "The Great Global Macro Experiment, Revisited" for more on this phenomena.