Interesting article in the WSJ this AM about earnings collapse.

The flip side of earnings is valuation — and that is the main problem here:

There are hints lately that the economy’s collapse isn’t quite as precipitous as it once was, which suggests the worst may be over for corporate profits, too. That doesn’t mean they are anywhere close to normal.

Since World War II, earnings have grown at about 6% a year, slightly trailing economic growth. But earnings have fallen well off trend during the current recession.

“As-reported” earnings per share — which, unlike “operating” EPS, conform to accounting standards — of companies in the S&P 500 are on pace to total just $28.75 for the past four quarters, according to Standard & Poor’s. That is roughly 61% below where they would be had they maintained a 6% growth rate in recent years, estimates Vitaliy Katsenelson, head of research at Investment Management Associates in Denver.

Slap a 15 multiple on that, and you end up with a very ugly S&P500 number . . .

>

Source:
Profits’ Return to Normalcy Seems Far Off
AHEAD OF THE TAPE
WSJ, FEBRUARY 13, 2009

http://online.wsj.com/article/SB123448383016879913.html

Category: Earnings, Economy, Valuation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

82 Responses to “Fair Value for S&P = 440”

  1. llandson says:

    Barry, I love it whenever you talk S&P earnings and/or valuation. But isn’t this little exercise the same kind of mistake as slapping a 15 multiple on June 2007′s $85 worth of earnings? Annual earnings are volatile. Why not take a 10 Yr. moving average of real earnings and slap a 15 multiple on that. Do that and we’re approx. fairly valued right now.

  2. 440 would still be higher (on a percentage basis) than the decline experienced in the Great Contraction. The SP should go to about 200 to mirror the decline that the Dow experienced during that era. My guess is that government programs that act as circuit breakers of sorts (e.g., unemployment insurance, social security, FDIC, the myriad Fed and fiscal machinations) won’t do anything more than make the long slide down take longer than it otherwise would have, and make recovery less robust than it otherwise would be. In other words, the government might succeed in lessening volatility, but I doubt seriously its ability to effectively change ultimate outcomes.

    “We” may all be Keynesians now, but I’m not. Keynesianism didn’t cure the Great Contraction. It won’t cure this.

  3. Byno says:

    Has a secular bear market ever ended with PE multiples above 10? If not, why is 15 the appropriate number? I realize earnings will probably improve, even as the market is in decline, such that trailing 12 month earnings will be better than trough as the market is bottoming, but still…

    What if the fair value of the S&P at the moment is actually more like 250? Not saying it will go that low, but at the same time, the Nikkei ultimately lost 85% peak to trough, and given that they’ve been in their own depression for twenty years now, forgive me for thinking there might ultimately be some ugly parallels.

  4. Mr.Sparkle says:

    This is interesting from a rational perspective but I think overlooks the psychology part of it.

    Back in the tech-bubble implosion, as reported PE levels rocketed up to the 30′s, all the way to the mid-40′s. And that was before the actual bottom. When the bottom finally arrived, the PE level had retreated back to the low 30′s on an as-reported basis.

    If you look at the EPS at the time, it appears that earnings finally ticked upward and brought the PE level downward before a mass of bottom fishers and “value” investors came into the market. After the bottom, PE continued to fall right up until late 2007. Undoubtedly there were some “value” investors that got suckered by these low PEs and continued to fuel the boom.

    I think it is more interesting to see the current EPS forecast from S&P and compare it to the years of 2001-2003. That might explain a bit better why the market has stubbornly clung to this level.

    Just my 2 cents.

  5. Mr.Sparkle says:

    Byno – here’s a chart of SPX and as reported PE. Source is S&P.

    S&P/PE

  6. I-Man says:

    Well… then its a good thing that fundamentals dont drive price… or no boomers will be able to retire… and I want their jobs.

  7. Robertm73 says:

    Look at the March Options for SP500 to be at 500. 108K open contracts. Very scary stuff.

    http://doomisnigh.blogspot.com/2009/02/sp-440.html

  8. farmera1 says:

    “Since World War II, earnings have grown at about 6% a year, slightly trailing economic growth. But earnings have fallen well off trend during the current recession.”

    Hum, we’ve had 6% plus economic growth since WWII, I would doubt it. The 6% plus number seems high to me.

    Using 10 Yr. moving average of real earnings and applying a 15 multiple to it is about as meaningful as…well its hard to come up with anything that would be less meaningful. Ranks right up there with houses never decrease in price.Sure I’ll buy stocks based on that little gem. Sounds like a sales tool to get people to buy stocks to me. Got to come up with some reason for people to buy stocks er houses or whatever.

  9. Mannwich says:

    Too many people in denial looking for the quick fix again. It’s not going to happen this time.

  10. Broken says:

    @llandson:

    Trailing 10 years is too long and does not properly reflect current conditions. I feel more comfortable with the average of last peak earnings ($85) and projected trough earning (~$29) with a PE multiplier of 12.

    This gives S&P = ~ 680.

  11. harold hecuba says:

    people continue to be confused..this is not a normal recession it is not an inventory buildup being choked off by high rates and falling demand. a recession that the fed and their KEYNESIAN dimwits simply lower interest rates to fuel consumption. this is a CREDIT bust. a once in a generation event. it aint going away any time soon may take a decade or more. all asset prices will fall. there is no where to hide. s+p trades a ludicrous levels here and i firmly see at least a 50% haircut

  12. Mannwich says:

    440 makes me look like an optimist (I’ve said we’ll breach 700!). 440 is apocalyptic territory, so obviously I really hope we don’t go there, but I agree with harold – this ain’t your Mom’s or your Dad’s recession and it’s going to feel very depression-like, probably for quite a while. This is likely the kind of event that makes fools out of all the “experts” since none of them were alive for the last Depression or were too young to really remember it and take away the key lessons. This is one for the ages that will be talked about for generations until it’s lessons are forgotten again and the next “brilliant” idea comes along.

  13. ar27t6 says:

    @llandson: “Why not take a 10 Yr. moving average of real earnings and slap a 15 multiple on that. Do that and we’re approx. fairly valued right now.”

    I generally agree with this approach, but I think you should subtract the impact of MEW and other credit creating vehicles that have since gone off to money heaven from the prior ten years of “real” earnings.

  14. Mind says:

    And that small minority that never lived by credit are the winners – until their savings are destroyed by the coming hyperinflation?

  15. JohnnyVee says:

    People are having difficulty accepting the fact that their homes are worth substantially less than a few years ago and investors are having the same difficulty with stocks.

    I thought bear markets usually see p/e between 8 and 10. A p/e of 15 is optimistic and expensive for this protracted downturn.

    Also, I am getting the feeling that if we end of like Japan that will be the best possible outcome for us. I don’t see how we can do better than Japan, when we are in worse shape and the world ecomony is in the toilet too. At least when Japan went into the crapper, they were in better fiscal shape and the world economy was expanding.

  16. @mind: Well, if you’re like me, you’re mostly or all in cash, and you’re starting to think about how much you want to count on gold as a cash equivalent. Not to make some goldbug speculative play, just as a hedge against inflation in every major currency.

  17. Strassertalk says:

    Barry,

    “Transparency… a new era of openness”, says our president, yet it seems there is an attempt to withhold the contents and accessibility of this hog-trough of an aid pkg and push it thru.

    “Democratic staffers released the final version of the stimulus bill at about 11 pm last night after delaying the release for hours to put it into a format which people cannot “search” on their home computers…
    one provision that may be a good example of why the Democrats are desperate to stop any exposure of what is in this bill. Like this gem:

    SEC. 1607. (a) CERTIFICATION BY GOVERNOR … and -(b) ACCEPTANCE BY STATE LEGISLATURE –

    detail: http://www.humanevents.com/article.php?id=30700

  18. Paul S says:

    15 is very optimistic, and earnings are volatile. Earnings will be down all across the board with very few exceptions. Reality and fundamentals will rule the next decade.

  19. Andy Tabbo says:

    There are some technicians that are calling for a power spike to 450′s. I’m not quite that bearish. But I’ve repeated this many, many times. We will see 600 this year. It would take a rally beyond 1010 to change my mind on that one.

    Watching some guy Rob Morgan with Clermont Wealth Strategies on CNBC citing Nov. as the lows and a “reverse head and shoulders formation.”

    WTF is that guy talking about? If there are any other technically-minded chartists out there, can you please outline for me the case for an inverse head and shoulder pattern? I sort of see what he’s talking about, but the formation is so non-formed at this point. What I see would require a move and break of 1010ish level, with 1010 ish being the “neckline.”

  20. “Why not take a 10 Yr. moving average of real earnings and slap a 15 multiple on that. Do that and we’re approx. fairly valued right now.”

    yes, of course, we know– every Yesterday=Tomorrow. Polaroidism as its Finest, even Land would Quake at that gross simplification..

  21. AndrewShaw says:

    I am a new client of Mish, so I was just reading the annual report from Sitka(Mish’s Firm) for their nice long-short hedged managed account, with an S&P chart showing a 450 as giving back all inflation-adjusted gains from 74-2000 bull market, then I pop over here and see this, I picked the wrong day to give up on CNBC. Maybe I shouldn’t have given up sniffing glue either, this is scary stuff when you still are holding on to too many longs. Threw GE in the fire yesterday morning, what a piece of shit, bought early September 08. Good-bye value/dividend investing!

    @AT “WTF is that guy talking about? ”

    I really did partially give up CNBC, bought the $1.50 a month Bloomberg from Dish. These people are dispassionate, sober-minded, non-cheerleaders(and the guests too!)for the whole last hour I have had it on. If this keeps up I am gonna fall in love with some of these smartly dressed attractive professional women anchors. Totally non-bimbo.

    I’ll keep the DVR set for Fast Money so I can see Mannwich(LOL, I know he denies it) and Barry when they are on. That’s a good show.

  22. jcook123 says:

    The WSJ and others need to do much better analysis here. I did the analysis when I first saw Barry’s post on the S&P 500 Historical Prices (went to the S&P 500 website link and downloaded the Excel spreadsheet and played with it. Obviously the WSJ reporter did a similar analysis but left out a few very important points for the sake of headlines.

    1) As Reported Earnings are very skewed in Q3 and Q4 2008 as most companies are writing off everything they can (throwing in the kitchen sink) to get all the negative earnings behind them. There’s no incentive to even meet earnings in the last few quarters (much less beat them). There’s huge incentive to make the last few qtrs as bad as possible (while still within GAAP) so Q3 and Q4 2009 comparisons will be that much better

    2) Operating Earnings are a much better measurement for all periods (this is probably best left for another deeper discussion as it will take the current discussion off track) – but Operating Earnings much more closely maps toboth cash flow and to “real earnings” and are much more stable.

    3) The true market analysis that should be done is to look at similar periods of economic disconnects and P/E disconnects. These periods are easily identified in the S&P 500 historical reports. Look at Operating Earnings P/E not Reported Earnings P/E’s

    — to really have fun for those of you actually diving into the S&P 500 spreadsheet, add a column that does a variance between the “As Reported Earnings” vs the “Operating Earnings” for any given quarter. The “periods of disconnect” will jump out at you – you can’t miss them!

    4) Historical P/E’s actually rise in these periods of disconnects as the market adjusts with the knowledge that earnings are out of whack. Depending on how you slice dice the numbers (rolling qtrly average comparisons vs prior periods of economic calmness), this P/E % rise vs prior periods is anywhere from +9% to +40%.

    5) Viewed with these lenses, there was an economic calm period (market wise – not talking real economy) with a reasonable S&P 500 trailing 12 month P/E of roughly 16.5 based on the 9 qtr avg from 12/31/04 to 12/31 06. This suggest that Operating Earnings P/E’s should rise to a range of 18 – 23x during the next 9 quarters of economic disconnect.

    Therefore, trying to slap a P/E of 15 on a WSJ number of “As Reported Earnings” makes for a good headline but it isn’t connected to historical actuals. Not to say that a P/E of 15 couldn’t happen – but to leave out the other case made above does a disservice to all readers and unnecessarily fans the flames of fear.

    The other case being that a P/E of 18-23 on Operating Earnings is more likely to happen. Yes, these operating earnings are falling but the low side from this vantage point is a low of S&P 500 650.

  23. call me ahab says:

    harold hecuba Says:

    February 13th, 2009 at 10:28 am
    “people continue to be confused..this is not a normal recession it is not an inventory buildup being choked off by high rates and falling demand. a recession that the fed and their KEYNESIAN dimwits simply lower interest rates to fuel consumption. this is a CREDIT bust. a once in a generation event. it aint going away any time soon may take a decade or more. all asset prices will fall. there is no where to hide. s+p trades a ludicrous levels here and i firmly see at least a 50% haircut”

    Amen- that is it in a nutshell- the old rule book is out the window- people have to wake up to that fact. The federal government will not ba able to ge the American economy back on the hamster wheel.

  24. Mr.Sparkle says:

    I’m not quite as pessimistic as a few commenters on here but I do think that the old saw, “The market can stay irrational longer than you can stay solvent,” is quite appropriate here. This market is untethered to fundamental reality at this point. A day that SPX moves 2% in one hour on a rumor of government intervention should confirm that.

    The valuations on the way down in the tech bubble were nowhere near “value” levels and never hit those levels until well after the market bottomed and recovered. At that point it was EPS recovery that drove down valuations.

    The point is, market participants would appear to have been clinging to hope and optimism in the future during that market skid. I believe something similar is happening here. What jcook says is mostly correct and the file from S&P is well worth a look. (One should always investigate original source material.) The other important file to look at is Shiller’s from his website going back to the 19th century.

    Whether this hope/optimism (two of the most dangerous emotions) will be rewarded in the next few quarters will be seen. (I’m guessing it will be a muddle.) My two cents is that there are violent reactions when delusions are finally shattered. We’ll see what happens with earnings in the coming quarters but if they don’t confirm the current hopes and expectations… it could be as ugly as some here are guessing.

  25. RW says:

    jcook123,s analysis looks more realistic to me. If equity price yields were competing with bonds in a high interest rate environment it would make sense for earnings multiples to contract deeply — ISTR they hit the single digits in ’81 for example — but that is certainly not the case now so PE’s above 15 seem entirely reasonable IMHO.

  26. karen says:

    Mr.Sparkle, you might like Jack McHugh’s commentary at BP Cafe last night.

    http://www.ritholtz.com/blog/2009/02/a-true-outsiders-perspective/

  27. Andy Tabbo says:

    jcook123:

    Spot on.

    Free Operating cash flow is the only true way to value a firm, everything else is accounting gimmicks. That’s just old school b-school valuation stuff.

    Would be nice to see some charts of Stock Price v. Operating Earnings (or preferable free operating cash flow).

  28. ironman says:

    Here’s another look at the latest earnings numbers and projections. (BR: You’re welcome to excerpt the chart – but you’ll want to click to get the sharper version of it!)

    If nothing else, the level of earnings should convince a lot of people that the Fair Value method for estimating stock prices is next-to-near completely worthless. In my view, any method of valuing stocks that that bases its calculations on P/E ratios or earnings data is a bit like getting one’s version of reality by watching shadows cast against a wall in Plato’s metaphorical cave. If you want a method that more closely conforms to observed reality, you want to look at it directly under the light, then really get under the hood.

  29. Mr.Sparkle says:

    @Andy-
    SPX vs. Operating EPS

    The more interesting one to look at is when as reported and operating EPS diverge significantly.

    @Karen – it was an interesting read.

  30. Andy Tabbo says:

    karen. thanks for the link. Bless this fellow. I hope he makes money on that “H&S” pattern, but I don’t see it.

    FWIW….

    The only possible inverted H&S I see is on the daily chart, where the action from 1044 – 842 -1006 formed a “Left Shoulder”….the action from 1006 – 740 – 944 formed a “Head”…subsequent price action down from 944 is forming a “Right Shoulder.” The problems with this proposed “Inverted H&S” is the severe slope of the “Neckline” as well as the sharp/well formed nature of the “Left Shoulder” compared to the messy/slowing moving nature of the proposed “Right Shoulder.”

    I may be wrong on this one, but I don’t see that development as an Inverted H&S. And “even if” this is a H&S, the neckline comes in around 900 and you need a solid break of that 900 level in order to “activate” the pattern (confirm it.)

  31. leftback says:

    I am not going to join the arguments about SPX targets of 660 and 440. But I will offer this:

    “it’s a market of stocks” – some of which are going to zero, while others are going to rise. We are witnessing a great big melting pot of destructive capitalism in action, which is why I am NOT trading the indices any more and I am focused on finding great companies at attractive valuations. I will repeat: I am avoiding stocks in ANYTHING that is loaded with debt, especially if it is in a non-essential industry. High-yield bonds are a better calculated risk.

    This recession is going to rip the face off anyone who wades into the areas of luxury goods, faddish technology, financial services, outdated consumer products and discretionary retail too early. This stuff is not going to work until we get to the very last leg of the W-shaped recession, and that is far away.

  32. karen says:

    Andy, his odds are in favor of a breakdown of the spx triangle, fwiw.

  33. cardus says:

    The as reported earnings p/e ratio as of Thursday night, based on data from Standard & Poor’s, is 29.1.
    From:
    http://www.marketwatch.com/news/story/How-current-PE-ratios-stand/story.aspx?guid={13BD1A19-0A04-4FEE-97A6-0A1C410D6881}

    Is the P/E ratio supposed to contract during recessions to single digit or is it supposed to expand as earnings fall ?

  34. call me ahab says:

    leftback said:

    “This recession is going to rip the face off anyone who wades into the areas of luxury goods, faddish technology, financial services, outdated consumer products and discretionary retail too early.”

    Alright- you got my interest- give me your picks for “faddish technology” and “outdated consumer products”. I am thinking lava lamps and bean bag chairs but please enlighten me.

  35. Thatguy says:

    Mr. Sparkle (aka Homer),

    I’m lovin the graphs. You rock.
    I’m with AT, the only H&S I see (inverted or not) is the one on that S&P PE chart with the left shoulder starting in 90-91. I doubt that tech analysis is applicable on such a chart though. That S&P Op Earnings chart is a keeper too. By the looks of it operating earnings LEAD the share price at bottoms. I would think that this would turn the conventional wisdom that stocks lead earnings on its head. Am I the only one seeing this, or am I just one of the latest ones to catch on to the inaccuracy of that old trope.

  36. AndrewShaw says:

    “This recession is going to rip the face off anyone who wades into the areas of luxury goods, faddish technology, financial services, outdated consumer products and discretionary retail too early.”

    If there was such a division as AppleFinancialServices, the answer would be Apple, Apple, Apple, Apple, Apple.

    typed on a Macbook, a great way to pay double for a PC…

  37. harold hecuba says:

    this is a deflationary BUST. stock that may look like deals will go down. as a matter of fact every stock will go down

  38. Andy Tabbo says:

    Thanks for the Graphs Mr. Sparkle. great.

    Thatguy…

    Ha. Yes indeed. That P/E chart of Mr.Sparkles does show a very nice example of a H&S. Using some log functions, if the P/E breaks the neckline at 17, I get a P/E target price of 7. Yes. that’s correct. A P/E of SEVEN. Ugh. I’m hoping that doesn’t happen.

  39. karen says:

    harold, oh thank you for posting that. we are guaranteed to get rally now. : )

  40. leftback says:

    AShaw: I love Apple products but I wouldn’t buy the stock. Or DELL or GOOG. Or you could take a look at the 5-year chart for RIMM. These large cap “growth stocks” are the value traps of this bear market. Going lower.

  41. call me ahab says:

    @AndrewShaw:

    I have thought the same thing for a while now- Apple products appear to me to be overpriced and faddish- case in point I bought a laptop for my daugher to use- a Compaq which I got on sale for $399- it does everything she needs to do which is mainly surfing the web, emails, etc. I don’t get the appeal of paying 3x as much for a Macbook- I would think that AAPL stock would have to take a hit in this regard because people will start to economize and save $$$ where they can.

  42. Andy Tabbo says:

    OT:

    I think Vermont Teddy Bear and PajamaGram have done themselves a HUGE disservice with the Non-Stop airing of the same commercials day in and day out. I think CNBC has made a mistake as well. Is the ad market that bad that you really want your viewers convulsing everytime the same crappy commercial comes on?

    I feel like hanging a Vermont Teddy Bear around the neck with some sexy pajamas from Pajamagram and then setting FIRE TO it….take some video…send it back to these firms. Maybe they’ll get the message for next year.

  43. 2lonestar says:

    Faith-based investing. Gotta love it.

  44. leftback says:

    @ AT: I always suspected you of Teddy Bear abuse.

    @ Ashaw, ahab: The magazine publishing industry is toast, you can put a fork in it. Newspapers? Ha ha ha ha

  45. Mannwich says:

    @AT: That is hilarious. Funny, but I have a similar reaction every time I see/hear those commercials. The snuggie is another one. Why not just buy a nice throw blanket? The whole family happily sitting around in snuggies just cracks me up for some reason.

  46. spigzone says:

    What will the fair value for S&P be in 4 years when the world has 20m bpd less oil than today?

    http://www.arabianbusiness.com/545723-oil-output-could-fall-by-30m-bpd-by-2015—merrill

  47. I-Man says:

    Long snuggie. Short Pajamagram.

  48. ben22 says:

    @AT

    C’mon AT you can get a Vermont Teddy Bear for the price of a dozen roses, and it can be customized.

    I see we got a hoffer post today.

  49. ben22 says:

    @Mannwich,

    A follow up to your back and forth w/otto the other day:

    http://www.realclearpolitics.com/articles/2009/02/hardly_the_best_and_brightest.html

    And, speaking of fair value how about this:

    http://www.chartoftheday.com/20090213.htm

  50. ben22 says:

    Just a thought but while everyone is talking about the US markets maybe we are all missing the action in China, it looks like that stimulus is taking hold there.

    I own a little FXI as of Nov 08 but that’s it.

    Any thoughts?

  51. whatthe says:

    White House leaks new plan to stem home foreclosures. Details are:

    1. Nationalize banks and then stop foreclosing on poor voters . . . . we mean homeowners.
    2. No relief for real estate speculators, people who never should have bought a home in the first place, or those who don’t pass a “liars” test on any liar loans. This is estimated to yield as many as 18 homeowners nationwide who would qualify for assistance. Coincidentally, all 18 are members of the UAW.
    3. Require all landlords to raise rental rates to make buying a home look like a good deal.
    4. HUD starts a $1 trillion “buy American” program where the government buys houses in severely depressed markets at more than they are worth and distributes free homes to any American who is not currently paying taxes as a tax credit.

    more details next week.

  52. Mannwich says:

    @ben22: Thanks for that. Couldn’t have put it better myself. This is exactly what I’ve been harping on ad nauseum for the past few months. Sorry to be repetitive but I happen to think it’s this the very crux of the pickle we’re in…….the lost of trust & confidence is gone and not coming back easily and quickly no matter what the feds do….in fact they could make things worse. I would not be surprised at all if we even see more reasonable people just simply refuse to pay taxes and engage in other acts of civil disobedience that would have been unthinkable in previous times. In the end that may actually be a good thing if big, positive structural changes are made as a result but it’s tough to not be seriously and truly worried about things completely breaking down at some point. The Wizard behind the curtain has been exposed for the fraud that he is and people aren’t buying it anymore.

  53. ben22 says:

    @Mannwhich

    Yeah I’m more with you than otto, I did, on some level see his point BUT I’ve always had a problem with the whole idea of thinking they are smarter than me so I should just let them figure it out type attitude. If you do that and things don’t work out not only should you not complain but you deserve what you get.

    As for some of the extremely confident posts above that we will be down 50% I’d just consider this quote from Whitney Tilson:

    “More productive, but also tricky, is to ask what lessons you can draw from recent errors that will make you a better investor. The reason I consider this tricky is because the recent market environment has been so unusual that it may be that lessons arising from it won’t be the ones that will help you profit in the future.”

    something to chew on anyway, and I’m not saying we won’t go down 50% but I always find that when I’m so convinced something about the market will happen, it almost always plays out a different way.

    I’m just hoping my hard asset strategy doesn’t go the wrong way because I’m in deep.

  54. Andy Tabbo says:

    ben22:

    in re: China….I’m not sure if it’s related or not but the grain charts look ready to take a leg higher to me. On 12/5 to 1/6 you had a very sharp “impulsive” type move. Since then we’ve lapsed into what looks very much like a “falling wedge” corrective type pattern grinding back to the 61.8% retrace of the first move up. I would be very surprised if we didn’t see a sharp move higher in the next few weeks. Maybe China is buying up grains?

    Not sure how you can trade that view…I looked at the MOO etf…that chart looks different than the actual grain futures I”m looking at.

  55. ben22 says:

    @AT,

    That is a very interesting observation, I have a large long position is in MON but I’m not sure how much of a bounce they will get from something like that, at least short term. Maybe I’ll search the ETF books this weekend and see if I can find something that could work for that. I don’t know of any off the top of my head.

    I look at stimulus in China much different than I do here, more like what large stimulus would have done for our economy in its infancy, in other words, I think there it will work much better and much quicker. That said, they have lost something like 20 million jobs there, so as quick as it may be, it won’t be overnight.
    Example:
    I hate to agree with cramer but if you were going to buy CAT it’d probably be more of a belief in the growth for them in China rather than what they will get from the bill here.

  56. Mannwich says:

    @ben22: Agreed. I don’t think we’ll go down another 50% from here but I do think that another 20% is entirely possible and probably at this point. The question is when does that happen? Like leftback and others here have mentioned, there is money to be made in certain stocks. It’s a stock picker’s market. I’ve had mixed results over the past six months but am not losing my shirt (essentially running in place, which is fine with me since I don’t have Steve Barrys’ cojones). I am still hanging with my strategy of long commodities/comm stocks (ACI, MOS, VLO, MOS, COP, DIG, GDX, GLD) and short via trading in and out of ETF’s via QID, SRS and to a lesser extent EEV and FAZ.

  57. Andy Tabbo says:

    ben22: Just charted the FXI.

    I was just charting that puppy. You realize it’s in a perfect downtrend channel right? I can draw almost a perfect 6 pt down trend line on that guy. It might break out of that channel and scream higher, but I’m loathe to say this “the trend is your friend.”

    In terms of Wave Principle..there’s a lot of elements to that chart that are similar to the SP500, which I guess is predictable.

    FWIW.

  58. I-Man says:

    AT… the chinese ARE buying up excess grains. CME has a good free commodity news thing that they email out after the close each day, and it covered that story last week… they are mandating buying up excess inventory for “crisis” situations as part of their stimulus.

    Take a look at the DBA for an ETF play… a little early maybe for a long. However, take a peek at the weekly chart, and we may have done a successful retest of that downtrend after breaking out from it last week. Volume starting to pick up a bit. There are definitely some bullish fundamentals brewing in the grains.

    I believe you are right on in your FXI TA. You too Ben. Some interesting trendline intersections forming on the daily chart. Could be a nice triangle/rising wedge kinda thing brewing right around the 50 d EMA.

    I think we might see another breakout in FXI… its clear that the retail traders are on to this… but (and thats a big but) we need to see some insty volume, or else its gonna get whacked again at the downtrend on the weekly. I’m targeting an entry on a successful retest of the downtrend on the weekly… AFTER it breaks out of that. Then the 50 day MA on the daily should make for a clear support line. Thats my two cents.

  59. karen says:

    Andy, i have to go directly against you on this. as of today, fxi at 27 is in an uptrend that will take it north next week. i should be buying it but i’m out of cash. : (

  60. ben22 says:

    @AT,

    Thanks much for the input, I’m not great with charting (still learning) so it is helpful and makes me think to watch that for another buying opportunity.

    I sold all the profits I made when I bought in Mid november early this year and I am sitting on my initial investment. I’m under 30 so (and don’t shoot me people) I had a plan to hold on to that over the long long term. I believe during my lifetime China’s market is going to do far better than ours. I had never owned anything China (other than some of the cheap goods in my house) prior to last November.

    I don’t know that I’ll outperform that market by picking stocks which is why I’m pretty content just holding that thing from here and letting the div re-invest, especially since I already sold my gain out from initial purchase.

    thanks again.

    Oh BTW, that was a pretty timely call on gold yesterday, not a huge nose-dive today but still down after a big run

  61. karen says:

    look at fxp… headed south. period. fxp was brutal last year but i made over $350k trading it.

  62. ben22 says:

    Karen,

    FXP was my top trade last year, I bought right around the olympics and cashed out for a 92% gain during the time I held it.

    thanks for the alternate perspective on the FXI, you helped me make some good money on TBT before so I appreciate it.

  63. Robertm73 says:

    “Long snuggie. Short Pajamagram.”
    I think the pajamagram and vermont teddy took out the snuggie.
    If you accept that the last 8 years was fiction based on cheap money and debt. Sp500 at 500 make sense. Now if we go there I expect larry Kudlow to explode!
    we need Barry on Fast Money every night!

  64. karen says:

    ben22, these are just my opinions, of course. defnitely not advice. love to be contrary to andy, too. or, maybe i just love to be contrary period. : )

  65. karen says:

    wretched last 5 minutes… it’s a good thing i don’t curse.

  66. Steve Barry says:

    Nasdaq As Reported P/E is 79…my friend at Citi with a Bloomberg verified it.

    Further bad news for longs…10 and 21 day MA on total put/call is again virtually at 3 year lows.

    http://www.financialsense.com/monitor.html

  67. ben22 says:

    that was an ugly close….

    I’m not real big on the idea of the 4 day week next week either, they tend to be pretty rough in my experience.

    I tried to make a few small trades after the big sell off late on Tuesday but I got stopped out of most of them right away.

    I’m thinking of having a hard asset T-shirt with logo made this week that I will wear around until they no longer dominate my accounts, which could be a few years.

  68. Andy Tabbo says:

    karen, karen, karen….

    C’mon sweetheart.

    FXI. From 10/31/07 it’s very easy to see a DRAMATIC LONG TERM DOWNTREND. On a closing basis, the downtrend line touches on:

    5/5/8
    7/23/8
    7/30/8
    8/27/8
    1/6/9
    2/6/9

    Compared to the SHALLOW pathetic uptrend line you’re referencing, I don’t think there’s any doubt which trend takes precedent here. We will break out of that powerful downtrend someday, but as far as I can see it has not yet done so.

    In terms of Wave Principle, it’s a really perfect unfolding five wave move so far. I won’t get into the gory details, but similar to the SP500, it really looks like big Fourth Wave concluded at $32 on 1/6/2009. The Fifth Wave targets $17.50. The model I’m looking at right now is extremely bearish and it requires some strong moves lower, so any kind of good move higher would make rethink it. Certainly any break of the downtrend line from 10/31/2007 would make take another look.

  69. ben22 says:

    @Steve Barry,

    I still don’t get the NAS. The $ has gone up, the earnings were a joke and yet still that. When is that thing going to crash and burn, of all the big three indexes that seems (and seems to be proven by your link) like it is the most likely for a huge drop still.

    Lots of tech’s do have cash though, do you think maybe since most people are looking for cleaner balance sheets that might be helping to prop up those silly p/e’s? I don’t know but I just wouldn’t want to own any tech here.

    Also, I’ve had a few people I know recently tell me how cheap apple was, i sort of just gave a blank stare in return.

  70. try2bamused says:

    Sorry to burst y’all’s bubble, but we’re going to SPX 150.

    And there’s nothing anyone can do to stop it.

    Not Tim Geithner. Not Ben Bernanke. Not Obama. Not even … The Government (gasp!)

    How do I know? It’s really quite simple. Any fool can see it…even me. Anyway, I’ll let you all know how I knew…when we get there.

    In the meantime, grab the popcorn, kick back, get a laugh out of the silly panicky monkey-head humans on CNBC and Capital Hill, and enjoy the ride of a lifetime!

  71. karen says:

    Andy, you are very difficult to satisfy. a near 73% drop in fxi over the space of a year, under the most extreme circumstances imaginable, and you aren’t looking for a bottom? maybe taleb is right and there won’t be a stock market in the future… maybe we’ll all be trading matchsticks…

  72. Mr.Sparkle says:

    OK… because of the kind comments about the charts I posted up earlier, I posted a bunch of similar charts up. (Along with some blathering.)

    See here

  73. I-Man says:

    @ Karen:

    I’m actually focusing much of my fundamental analysis on beads, shells, and candles… those are the markets of the future.

  74. Steve Barry says:

    @Sparkle:

    Nas arEPS is now 109!!! can you do an anlysis over time?

    http://www.financialsense.com/monitor.html

  75. Andy Tabbo says:

    O’ Mistress.

    I am very difficult to satisify. I’m very much looking for a bottom, and when I see one I will start screaming from the rooftops to start buying, rest assured. However, some serious economists have concluded that China is the MOST similar to the U.S. in 1929 – 32, due to it’s huge reliance on exports and it’s massive reserves. The U.S. now is more similar to Europe in the Great Depression. We’re debtors and can monetize our debts if necessary. China’s reserves are going to DWINDLE rapidly and they will not be able to change the habits of the population so quickly, to go from savers to consumers.

    So, yeah, I can see a full 75-80% decline in the FXI. It’ll be a nice setup down at $17 bucks…it’ll be a “new low” that gets most other technicians all bear’d….you’ll have tons of RSI divergence and be setup for a massive snapback rally.

  76. karen says:

    Mr.Sparkle, thank you. Great commentary, too. Particularly, “My (currently under-developed) opinion: In the next few years, the market will return to a situation in which investing is done based much more on dividends than on capital gains.” This is exactly what i decided last year. Sure, there may still be short term anomalies to trade on now and then… but i believe they will be more rare in 2009 and the years to come. To me, 2007 was virtually a repeat of the dot.com mania. i kept shaking my head and thinking, are we really repeating this?

  77. karen says:

    Okay, Andy, fair enough. As long as you are looking… Not much of a knife catcher, though, are you? Unfortunately, most bottoms are seen in hindsight…

  78. Mr.Sparkle says:

    @Steve Barry – That’s an interesting question and one that I will look into. Have to make sure I can find a reliable source of data. The good thing about analyzing SPX is that the data is public and easily linked to.

    @Karen – I appreciate the comments. It’s something I started to consider after going through Shiller’s data and doing some work on historic yields since the destruction of balance sheets certainly implies lower dividends. That and I was reading Chancellor’s book “Devil Take the Hindmost” and got to the part about the Nikkei and it’s miniscule yield. Well worth a read, if you haven’t checked it out.

  79. William Miller says:

    Carl Swenlin @ Decision Point atacks the same issue and his conclusions are even more dour.

    http://www.decisionpoint.com/ChartSpotliteFiles/090213_earn.html

  80. Binggan says:

    I added my two cents to this very provocative comment by looking at a long term PE chart based on 10 year rolling earnings.
    http://great2cents.blogspot.com/2009/02/earnings-and-valuation.html

  81. shiznitz says:

    great comments and links