DAVID TICE: “THE S&P IS GOING TO 400″
14 August 2009 by Cullen Roche
21 Comments
David Tice is exceptionally bearish. He says the market is grossly overvalued and priced for overly optimistic earnings. He believes the S&P 500 is going to 400 within the next year.
i m bearish but this is scary bearish…
It’s over the top bearish. Unfortunately, everything he says is kind of true….
I think he is off by 1000, we will be @ 1400 by eoy 2010.
Growth is back, and the bears hate it. And the reality is that once the US consumer delevers and starts spending again, sustained growth will be back for 2010-2011
… and whether we go to 950 spx or break 1016 resistance … or correct in late Aug/September is immaterial in the next 12 month period
Buy Equities. Inventory rebuild will lead to job creation which will lead to a virtuous cycle.
Great piece thanks for sharing!
I almost can’t believe that discussion made it on TV!
The scary part isn’t S&P at 400 the scary part is what people start doing at those levels.
I hope this doesn’t happen but I’d be surprised if it doesn’t.
Firstly, he is not saying anything new. It is prologue to what comes next.
What amazes me is that no one questions him on his assertion that SPX is trading at 20x 2010 EPS. The $50 he uses includes over $20 of writedowns. Does he think these are recurring writedowns into perpetuity?
He is a sham. I would not hire him as my junior analyst.
i kind of doubt if the consumer will be back any time sooner. my email account received all kind of discount emails from all kind of retailers, and the frequency and amount of discount has been increasing from retailers big and small, and that never happened before.
it’d be interesting if someone can collect the discount information systematically and create an index for consumer spending…
have a good weekend all
X,
I agree to some extent. It has always baffled me why people come to valuations using the PE ratio. It is an estimate of an estimate of a moving target (price). And you’re right – $50 is ridiculous. GS is at $75.
I have never used PE ratios in my analysis. Price is price. Tell me where earnings, sentiment and a few other factors are likely headed and I’ll tell you where overall market prices are headed. 2, 20 or 200 PE I could care less….
“And the reality is that once the US consumer delevers and starts spending again, sustained growth will be back for 2010-2011″
I agree 110%, in that once the deleveraging is over it will be the BUY of a lifetime for a long term hold…however that develevaring is what is going to TAKE us to NEW lows in 2010.
I agree with Mr Tice here.
there is ALOT more deleveraging than many think…..
Fundamentally he is correct.
But the US Govt. will not let it fall that far.
Invest accordingly.
I am bearish. But I went to the mall today and could barely walk without banging into someone. I told my friend: ‘What happened to the second great depression?!’. Maybe I am sheltered since I live in Boca Raton, Florida but my mall experience today does not reflect an S&P at 400. I don’t think any of our lives are THAT bad, yet…I don’t however believe the markets should be above 1000 either though…
James, many many people are having similar experiences out and about, and wondering “are we out? or was it just not that bad?”. People only register what they see. And humans in general are very poor at noticing big changes that happen slowly. There won’t be doom and gloom everywhere, but one thing is for sure, the US has gone past the tipping point, and the unwinding of the US’ drunken credit binge will be unlike any other.
400, sure based on single digit PEs
but, the grand casino is alive and well, greed is now stronger than fear
apple is 170
amazon is 90
these are pre-credit crisis highs
no one cares, at least not the day trader, the hedgies, the swing traders, the whatever
we are a disaster away from a meltdown, but no one knows what the disaster is or when it will happen
mkt can go to 12,000 or can go to 7,000
it is nothing more than a crap shoot
the sad thing is, the consumer has not learned….
cash for clunkers hilarious!, i pay as a tax payer 4,500 for someone else to benefit, but that someone else who is buying a 35,000 car is now deleting savings (or incurring more debt) by 30,500…so stupid dont yah think
what about just 4,500 cash for everyone to do as they please?
or cash for candy?
Tice isn’t saying anything radical. None of you know the
difference between operating and GAAP earnings….you
had better learn. GS $75 “operating”= Tice’s $50 GAAP
and he is being far too kind.
Oh and duh…guess what the historical basis for S&P earnings
is? GAAP, not operating earnings…..so all you bullsuckers are singing the praises of one of the most overvalued markets in history.
too much greed still out there
maybe if the die hard day traders and the HFT machines are turned off, the mkt can retest
but who the heck knows
apparantly the brightest and the best (SAC capital and likes) are (and have been since OCT 08) sitting this one out…..
everyone else, day traders, swing traders, well, seems like they have a gambling problem
Erik – i dont think you, me (or markets) can/will wait to buy equities until the US consumer fully delevers and starts consuming again. Markets are (for good or bad) very forward looking and once the savings rate acceleration starts deccelerating (third derivative), mkts will start pricing in end demand growth.
E – I beg to differ. SAC is +18% YTD and over their high water mark in many funds. And so are many other funds. Guess what that does to sentiment within a hedge fund. You are now willing to take more risk – gross and net. So, they BUY.
Many of the fund managers who missed the bottom and remained cautious are OUT. Out as in close shop – Atticus, Palotta etc. What happens to the $ that they return to their investors. Flows back to other funds. So, those funds BUY
Do other managers want to suffer the same fate as Atticus? No … so they BUY.
So, Buy Equities
TPC – i agree, absolute earnings are not that relevant. Its the upgrade/downgrade cycle. And we will be in an upgrade cycle for several quarters.
So i look to BUY .. and a correction would be welcome
Unless the markets ratchet up valuations (which is happening now and may be possible with Feds providing a floor in the markets) how is it possible we can go back to SP 1400-1500? Regardless of what savings rates do, credit availability has been slashed to millions of consumers. To say that we can go back to 1400-1500 while consumers have less credit available and available home equity, regardless of what unemployment does is a pipe dream. Where’s the money going to come from? Employers? Probably not since people weren’t spending money they really had in the first place. The only way we get there in the next few years is with higher valuations and/or a lower importance of the domestic consumer in a global economy…but it’s going to take time at least until credit starts to expand again. Then it will be time to do it all over.
The one comment that really caught my attention was at the end of the interview when he stated that he was never more confident the market would go back to the March lows and break through. Wow. It would be interesting to hear his thoughts on Fed intervention. You have to wonder though what his gain is from taking such a vocal stance. He may honestly believe that Fed intervention doesn’t work in matters like this but it sure as h!ll is working now. Why should it stop (unless they want it to, say, to get people to buy bonds). THere must be money to be made now with this kind of message regardless if it pans out later. Interesting.
He is a pretty good technician, so he might be looking at something like this:
http://blog.chart.ly/2009/08/13/comparing-the-1929-2009-major-rallies/
Pretty frightening. If you believe in history repeating itself (because of human psychology being the same) he might be right.
Forward and trailing P/Es are worthless but Shiller’s inflation-adjusted ten-year P/E is one of the most accurate valuation metrics I’ve seen. Earnings on that basis are $57; on a seven-year basis: $58. $75 is a fantasy. No doubt Goldman is selling into that estimate. Thanks for my sell signal Abbey.
http://www.econ.yale.edu/~shiller/data/ie_data.xls