Comments on: IS THE MARKET CHEAP?

By: buckstar

buckstar — Thu, 17 Sep 2009 19:30:42 +0000

Would a much higher average P/E ratio be warranted after the US got off the gold standard?

By: Steve

Steve — Thu, 17 Sep 2009 19:02:34 +0000

This uses a 10 year trailing average for earnings, so for the E to go up we would need to be reporting earnings in the coming months that are higher than the monthly figures that they are replacing from 10 years prior. That is highly unlikely.

By: Balinvadasz

Balinvadasz — Thu, 17 Sep 2009 16:46:04 +0000

We can also undershoot by raising E while keeping P more or less constant. Granted, I don’t think that is what will largely be responsible for undershooting in the short term, since it will be very hard for most companies (except investment banks) to raise revenue (and profit) given the macro backdrop of the US economy (large unemployment, large debt overhang).

By: VCC

VCC — Thu, 17 Sep 2009 14:53:54 +0000

For us to undershoot and bottom like we have at every other significant market bottom over the last 100 years (save for 2000-03 when cheap money propelled us out of the mess) we’re looking at an S&P range of 350-450. But maybe this time is different…

By: Jeff

Jeff — Thu, 17 Sep 2009 14:38:15 +0000

“The PEG ratio of 1 is sometimes said to represent a fair trade-off between the values of cost and the values of growth, indicating that a stock is reasonably valued given the expected growth. A crude analysis suggests that companies with PEG values between 0 to 1 may provide higher returns”
http://en.wikipedia.org/wiki/PEG_ratio

today:
fdx – peg=2.75
xom – peg=2.15
ge – peg=2.36
ba – peg=2.14
cat – peg=4.04
amzn -peg=1.81
aapl -peg=1.59

By: Purple Teeth

Purple Teeth — Thu, 17 Sep 2009 14:07:25 +0000

>>Bottom line is that if historical norms are going to play out then we will have to go below 600 on SPX to ge into the high single digits.

Not true if inflation catches hold a la Faber in next [decade] …

By: CTC

CTC — Thu, 17 Sep 2009 13:48:04 +0000

This is a goood post. I was studying this last night on the dshort.com website.

The downside if we get it in the single digits per historical norm can take as long as 19 year or as short as 3 years.

Bottom line is that if historical norms are going to play out then we will have to go below 600 on SPX to ge into the high single digits.

This doesn’t mean that we cannot go higher because we can and still be in the historical norm because according to dshort.com we are in the 9th year of this cycle.

By: Purple Teeth

Purple Teeth — Thu, 17 Sep 2009 13:39:48 +0000

The thing is the timeframe it takes to go to trough … many years to decades. And it seems we have no memory or patience for that … bulls have no memory, and bears have no patience, want to rip the bandaid off right away … and everyone gets whipsawed in the interim. Good fun for all.

By: Steve

Steve — Thu, 17 Sep 2009 12:53:45 +0000

Shiller’s spreadsheet always seems to be missing data. The earnings cells for July and August are blank (cell 1671-J and 1672-J), yet there are used in the PE calculation. If you fill these in with a value of 7.47 (value from June in cell 1670-J) that pushes the actual 10 year PE over 19. Still, as you said, not too extreme, unless we see the usual mean reversion on the downside…