As we indicated in Part 2, the very idea that you would pay 26X EPS for the S&P 500 at the tail end of a 103-month-long recovery cycle is truly ludicrous. That is, there is a time to anticipate strong profits rebound during the early years of a recovery, thereby meriting a robust PE multiple.

But there is also the obvious point that expansions eventually become long in the tooth and end in recession. Even by the lights of the central bank money printers, the business cycle has not yet been outlawed.

After all, that’s why the Eccles Building is now motoring head-down and straight into an epochal pivot which it is pleased to call interest rate “normalization” and balance sheet shrinkage (QT). In plain English, however, that is just central banker-speak for bond dumping on an unprecedented and epic scale. And it is being done out of deathly fear that the next recession will make its appointed rounds with the Fed out of dry powder and impotent.

Folks, these people aren’t totally stupid. They have amassed extraordinary power and plenary dominance over the nation’s $19 trillion capitalist economy only by assiduously cultivating the mother of all Big Lies. Namely, the myth that private capitalism is dangerously unstable and possessed of an economic death wish for periodic cyclical collapses, which can be forestalled only by the deft interventions of the central bank.

That’s self-serving malarkey, of course. Every recession of the modern Keynesian era has been caused by the Federal Reserve, and most especially the calamity of 2008-2009. And the “recovery” from that one, as well as those stretching back to the 1950s, was owing to the inherent regenerative powers of the free market, not the interest rate and credit supply machinations of the Fed.

So what we really have is a case of the monetary Wizard of Oz. There is nothing behind the Eccles Building curtain except a posse of essentially incompetent economic kibitzers who spend 90% of the time slamming the same old “buy” key on the Fed’s digital printing press, while falsely claiming credit for the inherent growth propensity of private capitalism.

Yet let the next recession/recovery cycle occur while the FOMC is sucking its thumb for want of capacity to slash interest rates, such as the 550 basis point cutting spree after both the 2000-o1 and 2008-09 recessions, and its curtains time for modern central banking. That’s because the US economy would recover just as well with no artificial money market rate compression as it has done twice already this century after 550 basis points of the same.

So the real implication of QT and the Fed’s upcoming $600 billion bond dumping campaign is not merely a drastic reset of the ultra-low interest rates that are now “priced-in” at 2850 on the S&P 500. The real message is that even the Keynesian central bankers are gathering acorns with extreme urgency in order to prepare for the next economic winter.

Needless to say, that’s why the sell-side’s ex-items hockey sticks pointing to 33% profits growth over the next two years are completely irrelevant at best, and a monumental con job, in fact. That’s because all of history proves there is not a snowball’s chance in the hot place that such “peak” cycle earnings levels can be sustained on a long-term basis.

For example, after the 119-month business cycle expansion of the 1990s, so-called “operating earnings”(or profits adjusted for the bad stuff) peaked at $56.79 per share in the LTM period for September 2000. But this peak level was not remotely sustainable.