CIO Robert Zuccaro discusses how there are no guarantees in the investment business, only probabilities. 

Robert Zuccaro, CIO & Founder of Golden Eagle Strategies, addresses hot topics in the investment community around potential recession, a stock market crash, the debt ceiling, and why investors should rethink keeping assets in cash.

If you look at the first quarter, you will see that the S&P was up 7%. And of the gain in the S&P, the 20 biggest stocks accounted for an increase of $2.1 Trillion in net worth of the S&P. If you look at the other 480 stocks in the S&P, they have contribute a gain of not $2.1 Trillion but in aggregate gain of a mere $170 Billion. So the gains in the market have been compressed into a handful of companies, and these handful of companies have among the worst earnings trajectories, and in a lot of cases, they've been reporting negative earnings growth.

So the hallmark of top-performing stocks is profits growth. It has nothing to do with P/Es – and one of the arguments today against the stock market is that the P/E for the stock market has gone up and the stock market is selling at a historically high P/E of 21-22 times. Now, the flies in the ointment here is that we have entered an era of permanently high P/Es in the stock market because of the impact of technology not only on the economy and the business landscape but also on the stock market.

Was 2008 a good year or a bad year for the stock market? Profits dropped 40% in 2008. When profits drop, the P/E expands exponentially and the highest P/E in the stock market is when corporate profits are at their worst. So, the other fly in the ointment about this observation about a high P/E, corporate profits right now are trending down, which means that all things being equal, the market is staying the same and going nowhere - the P/E has to go only one direction and that’s up.  

• Debt ratios don't matter.
• Price to book doesn't matter.
• Return-on-Equity doesn't matter. 

Every one of these ratios, which is widely used, is a snapshot in time. And all you need to know about these ratios: 

• If profits are going up, the return on equity is going up.
• If profits are going up, the debt ratio is going down because you're paying down debt. 

All these ratios are subservient to profits growth rate. And most of the world doesn't know this, 80% of the world wants to rely on P/E but it's the wrong metric.