Comments on: Is the U.S. market “cheap”?

By: HyperEcstasy

HyperEcstasy — Sun, 16 Nov 2008 12:47:33 +0000

I can’t see how Hussman’s price to peak earnings makes much sense.

If a business’ profits had peaked 6 months ago and have been falling since then, would you value the company based on its earnings 6 months ago or its earnings now?

By: eternitus

eternitus — Sat, 15 Nov 2008 12:48:01 +0000

Dow PE is around 10 and the numbers above include enormous writedowns that skew the result. I have to doubt the helpfulness of comparing the numbers across periods unless you normalize earnings. Current writedowns obfuscate the true earnings power of the market… relying on the headline number without examining what is behind it is just lazy.

What we do have is a Dow yielding more than treasuries. That is not sustainable… either treasuries will have to get murdered or the dow will have to rise. Dow’s div coverage is good, so I wouldn’t expext a meaningful fall in the yield going forward.

By: jakester

jakester — Sat, 15 Nov 2008 11:47:45 +0000

the amount of bulls out there buying up every failed rally tells me that the main course is ready to be served..

By: harold hecuba

harold hecuba — Sat, 15 Nov 2008 02:10:09 +0000

ok here it goes. we are experiencing massive deflation on a global scale. SOME credit markets have eased but remain well elevated others such as corporates to treasuries are at RECORD levels. corporate default rates are still very low and only to increase somewhat maybe dramatically. housing has not come anywhere near levels where current incomes can support prices. overcapacity is everywhere and unemployment will continue to rise. AIG was responsible for 1% of all CDS (there is a monster lurking out there) currency volatility has gone balistic and will wreak havoc on balance sheets globally. the economy is on complete life support. please tell me what happens when the gov lets off the gas pedal. how can anyone have any idea about cash flow when the gov has intervened to such an extent. analyst estimates are absurd. people are WAY UNDER ESTIMATING the magnitude of this mess. rally here rally there on hopes and dreams. the bear will continue its decline on the slope of hope. I’ll call for a depression. s+p 650 and well below

By: RonN

RonN — Sat, 15 Nov 2008 02:01:04 +0000

Here’s a link from an econ prof at Johns Hopkins on the interesting story of how Robert Shiller’s arguments back in 1996 led Greenspan to give his “irrational exhuberance” speech. Too bad Alan didn’t take appropriate actions, but it didn’t fit his “worldview”.

Note that an updated analysis of Shiller’s “Graham Chart” in this link prompts the author to say:

“Some market commentators argue that the recent stock price declines reflect a degree of irrational pessimism or panic that is the inverse of the irrational exuberance of the 1990s. The Campbell and Shiller figure provides no support for that view…”

http://www.rgemonitor.com/financemarkets-monitor/254416/recent_stock_declines__panic_or_just_the_end_of_irrational_exuberance

By: RonN

RonN — Sat, 15 Nov 2008 01:32:33 +0000

cpwestcoast says:
“….stocks arent going to 10 times, sure they did 30 years ago, but look at interest rates then vs now…”

Not true, PE’s DO go to 10 in times of low interest. Using Robert Shiller’s PE10 database and ignoring months when long term interest rates are above 4.5%, my analysis shows that 15-18% of the time PE’s are 10 or below (see footnote in my post on SeekingAlpha
http://seekingalpha.com/article/101934-how-low-are-pe-ratios-a-comment-on-mark-hulberts-take ).

One could argue that our present problems (known and unknown) are not as bad as they were in those 15-18% of past times, but then again, one could argue that the other way too….

By: cpwestcoast

cpwestcoast — Sat, 15 Nov 2008 01:12:39 +0000

just a casual observation – i have been reading this site for about 6 months, generally i have agreed with your bearishness/straightforwardness, but….the real reasons to be bullish would be (1) street numbers have gone from too high to too low, as in the street isnt surprised by the amount the BBY/INTC/NOK has taken numbers down by (unlikely) (2) stocks are so cheap that even if they are trading at 12 times next year and next year has to come down 10% it is still worth owning stocks because stocks are not going to trade at 10.8 times next year and 12 times is trough valuation (quick aside, stocks arent going to 10 times, sure they did 30 years ago, but look at interest rates then vs now)…..but the reasons to be bullish that have been posted here are a technical look at the SSO, and a chart showing spx valuations using trailing 12 months….it is just too easy to shoot holes in these…technicals are a tool in the toolbox, and can help for a trade, yes things can get overly bearish, but shorting these rallies is easier than trying to use technicals to call a bottom…and trailing 12 months, plse, 09 is going to be radically different that 08 based on the whole recession/depression, not to mention the stock mkt is fwd looking, trailing 12 month eps is worthless/dubious in general and specifically now…i dont really have a point to this post, and I am certainly not trying to call you out barry, but if you are going to highlight reasons to be bullish (even if its for a bounce only) i guess i would expect more, it seems like you are just throwing anything up that you come across or see that confirms your view, which is a selectivity bias that i would guess is hard to avoid as it is human nature to defend one’s view

By: RonN

RonN — Sat, 15 Nov 2008 01:00:44 +0000

Stocks are “cheaper”, but not “cheap”.

When “irrational exuberance” subsides, fundamentals like PE ratios come back in vogue. See the 2 links below, one on Nuriel Roubini’s RGE website and the other on SeekingAlpha, which support this view

They also show the use 10 year earning averages to “smooth out the bumps” in earnings — an issue pointed out by Mike C and Mike M above. Note that Robert Shiller, Ben Graham, and many others recommend using this 10 year average.

1st link is authored by James Hamilton (UCSD Econ Prof)
http://www.rgemonitor.com/globalmacro-monitor/254404/investment_advice_for_a_wild_market

second link is an article of mine on SeekingAlpha over a month ago.
http://seekingalpha.com/article/99347-too-late-to-short-spy-an-historical-perspective

By: DP

DP — Sat, 15 Nov 2008 00:45:36 +0000

Either I have misunderstood the 11-15 deadline, or some others are.

Isn’t 11-15 significant only because that is the date by which investors in a number of hedge funds have to give 45 days notice that they would like to withdraw their funds at the end of the year?

A lot of the selling is a rush by hedge funds to get in front of that in case other hedge funds under-estimate their redemptions and there is mass selling between 11-15 and year end? There is potential for that and there is also potential that they all overshot and have more cash than they need? I guess we won’t know for sure until end of year.

In the meantime, I’m starting to develop all kinds of conspiracy theories about this all being a huge shake-out so they can load up again, at their own leisure (which may or may not be a big rush of cash back into the market). Is this a real change in consumer behaviour, or a stock market driven “system shock” similar to after 9/11 that people gradually come out of?

By: I-Man

I-Man — Fri, 14 Nov 2008 21:12:06 +0000

http://www.reuters.com/article/americasDealsNews/idUSTRE4AD04220081114

If interested.