Fact Vs Fiction: GAAP Earnings Have Yet To Surpass 2013 HIghs

How easy is it to goalseek one’s analysis knowing in advance the outcome one wants? Extremely.

Take as an example bank correction and recession “checklists”. Two weeks ago we showed that as of this moment, more than two-thirds, of 68%, or 13 of 18, Bank of America “bear market” checklists had been flagged.

Meanwhile, in a just released update to its “recession dashboard” Credit Suisse does not find a single indicator that points to a recession; in fact, until recently, everything pointed up toward “Expansion” and only this week, did the Swiss bank finally make one change:

In light of the recent acceleration in wage gains, we are updating our Recession Dashboard, taking “Inflation Trends” from favorable to neutral. While not yet problematic, an overheating labor market poses the greatest threat to profit margins and could force the Fed to become more engaged. the worst it can show is that Inflation is currently flagging a “neutral” economy.

This is hardly surprising as it goes to the basis of modern finance in demonstrating how the same exact underlying data can be interpreted in two diametrically opposite ways by a pessimist and by an optimist.

And to demonstrate that again, we go the same report by Credit Suisse’s new equity strategist Jonathan Golub who also shows how vastly different corporate profits are if one looks at GAAP vs non-GAAP earnings.

As shown in the chart below, while non-GAAP, or adjusted, earnings are now at all time highs, and feed into a “modest” 20x forward PE multiple, non-GAAP earnings have yet to surpass their 2013 highs!

And while historically a GAAP vs non-GAAP spread of this magnitude has traditionally launched recessions, this time it is singled out as a sign of economic health!

And finally, in the best example of reality vs hype, here is a chart showing that the spread between intentions to raise wages and actual wages has never been greater…