As promised, today brings us to the 4th in our series of charts:
P/E vs S&P500
click for larger chart
courtesy of Mike Panzner, Rabo Securities
I’ll get into the significance of what this means to the markets later, but for now, note where the P/E is over the median, and its impact on market performance.
Stocks, while not terribly expensive, can not be called cheap by historical measures. An even more discouraging mesure on this comes from Clifford Asness of AQR Capital Management (via Mark Hulbert). He calculated the P/E ratios for the entire market for the 1871-2003 period at ~11. That implies stocks are even less cheap (or more expensive) than the past 50 years implies.
Regardless of whether you take the 50 year or the 132 year perspective, the theory of Reversion to the Mean implies that stocks are likely to become cheaper so as P/Es revert. And one shouldn not expect the market to stop at fair value, as we have seen, the tendency is to overshoot on both sides.
Our 3 prior Charts:
We’ve broadly discussed the recording industry this year. How’d they do in terms of numbers?
After a slight blip up in 2004, CD sales resumed their prior slide. Sales were off 7% (CD albums only) or 8% (CDs and singles). The decrease is comparable to the decline in Movie theater attendance, which fell about 7%.
Reported Album sales (January through the week ending
December 25) were 602.2 million in 2005; weaker than last year’s 650.8 million. Digital singles sales more than doubled to 332 million — a 148% increase.
Some blamed the Album CD sales slump on the cherry-picking of singles by a fickle public. But the broader analysis reveals that CDs are a format in decline. While 95% of music sales are still in the CD format, there are plenty of signs this is changing. In addition to the different fortunes of the two formats — CDs are slumping while digitial downloads skyrocket — the industry itself is changing. A new breed of music label is distributing their product strictly in digital format, thereby bypassing CDs entirely. See Cordless Recordings as an example of this.
This year’s biggest sellers, according to Nielsen SoundScan, were Mariah Carey’s Emancipation of Mimi at 4.866 million; In second place was 50 Cent’s The Massacre, which sold 4.834 million. "American Idol" winner Kelly Clarkson’s Breakaway finished 3rd, selling 3.4 million copies. The top sales position has not been occupied by a female solo artist since Alanis Morissette’s Jagged Little Pill in 1996. In 2005, female solo artists captured the gold and the bronze.
Although the major labels lament the internet, P2P, and file sharing, it turns out that the Net has been a boon for Indie Labels. Much of the industry’s complaints are actually about disintermediation — the web forces them out of the relationship between the artists and their fans. The indies understand this, and have been using the net to promote their unknown artists.
While sales here, in the UK sales continue to do better than in the U.S. — despite Great Britain’s widespread adoption of broadband. Credit likely goes to the wider playlists in UK radio, and a payola-free radio industry. Britain does not have the same concentrated private ownership of Radio Stations which have become so prevalent in the U.S. since the 1996 Telecommunications Reform Act, which enabled firms like Clearchannel and Infinity to scoop up 1,000s of stations.
Its no coincidence that music sales problems can be traced to what occurred following that legislation’s enactment.
While legal Music downloads more than doubled this year, so too has the recording industry’s misconduct. After settling Price fixing charges in 2002, it appears that the recording industry brain trust is at it again: An industrywide probe into how much record companies charge for digital music was started by NYAG Eliot Spitzer; subpoenas have gone out to several labels.
One last astonishing piece of music trivia: Mariah Carey’s CD spawned her 17th #1
single, "Don’t Forget About Us." This places her in second place on the
all time #1 hit list — behind the Beatles’ total 20 #1 hits. If Carey
manages to pass the Fab Four, I will interpret this as incontrovertible proof that life is meaningless or God is dead . . . I haven’t decided which.
Finally, you can see my Anti-"Best of 2005" here.
UPDATE January 3, 2006 6:09am
It turns out that the British are the ‘world’s biggest music buyers.’ According to figures released by the British Phonographic Industry (BPI) early 2005, the UK music industry recorded an overall 3% increase in volume sales, mostly due to its robust albums market.
The British buy the most compact discs in the world – an average of 3.2 per year, compared to 2.8 in the US and 2.1 in France.
Silent Night for Music Sales
Holiday Buyers Spurn Tunes As Industry Picture Worsens; ‘Cesspool of Really Bad Bands’
THE WALL STREET JOURNAL, December 16, 2005; Page B1
UK ‘world’s biggest music buyer’
BBC, Tuesday, 22 March, 2005, 12:25 GMT
The extensive list of sources used in this posting can be found below
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