Friday, July 24, 2009

HISTORICAL REAL PRICE TO EARNINGS RATIO


*Chart courtesy of Professor ROBERT SHILLER
It is my contention that we WILL see another bottom like occurred after 1929 Bear and 1970's Bear markets which left the S and P 500 at HISTORICAL LOWS when compared to valuation based on earnings X PE ratio. TOO many people follow the skimpy 30 Industrial stocks of which recently had 2 weak ones removed and 2 stronger ones added helping to skew results to the upside. Whereas now we compare 500 of our best companies, it is harder to change results when a few drop out and new ones added.
You can also see the HISTORICAL EXTREMES of VALUATION at the end of what most of our generation can remember, our experience is tainted by living during the LONGEST RUNNING BULL MARKET IN HISTORY. Did it end in 2000 or 2007? some 25 years LONG!
2 of the worst Bear markets in history FOLLOWED these generational BOOMS which resulted in BUSTS.
But in 2000 the FED threw all they had at the decline, cut interest rates to 1% and held them there, we also had the "YEN CARRY TRADE" which artificially held DOWN long term interst rates.
Instead of correcting and taking the medicine, we just threw more FUEL on the fire and popped right back up. THE FED did not take heed in the real Estate speculation BUBBLE, remember they are just a CONSORTIUM OF CENTRAL BANKERS GREEDY MF'ers.....and were making money hand over fist.......did NOTHING, GOV DID NOTHING (also greedy mf'ers because TAX RECEIPTS were POURING IN) and the population went WILD and everybodys next door neighbor were buying MIAMI CONDO'S to FLIP!!!!!!!!!!!!
Like almost ALL "INVESTING" its ONE BIG PONZI scheme, one of musical chairs which COLLAPSED.
More of a worldwide global economy now then in 1920's, even ICELAND got in game, and went bankrupt too. SEE they don't have THE RESERVE CURRENCY to print at will....and pay fpr everything.......TOXIC DEBT FROM SEA TO SHORE TOUCHING ALMOST EVERYBODY EVERYTHING.
Now, I am going to ask you a simple question, it is obvious to me, this last GAMBIT was the MOST SPECULATIVE IN THE HISTORY OF SCHEMES, how then should the TRIP TO THE MEAN be accomplished? TO HEAL, to be in position to GROW again, for our next BULL MARKET......WHY WOULDN'T WE SEE PE'S DECLINE to what was seen at the 2 other prior mania'? BECAUSE PRINTING PRESSES HAVE GONE WILD it wont be as bad?
History tends to repeat. We are living through the Kondrateif Winter Cycle, it is usually 50-60 years, it has been delayed by EXTROARDINARY FED and GOV measures.......to a 70 yr something cycle.
And I BELIEVE this BEAR MKT will end near SINGLE DIGIT PE RATIOS......and this would probably mean an S and P 500 price of somewhere between as low as 250 to maybe 400, which mean an ultimate BREAK of the MArch lows.....this is JMHO of course.
Our current PE ratio looks more like a mkt top than a bottom. Dividend yields for SPX 500 are not near their historic high avg either. This SECULAR BEAR could be interupted by a few cyclical bull markets before final lows are set in.
We talked about pace of NEW HOME SALES. in 2005 we sold 1,283,000 homes, we are now off some 73% !!!!!!!!!! Carloads of tonnage off more than 20%. Unemployment highest in 30 years. Data which is DROPPING MORE SLOWLY is not like economic EXPANSION.
4 MILLION US WORKERS cannot find jobs for some 26 weeks, most on record.
US CORPORATE TAX MONIES HAVE DECLINED BY 57% (data Catherine Clifford) which means profits are EVAPORATING.
Listen to the bulls if you like, and those yelling NEW BULL MKT, the medicine we need to take to find our BOTTOM is not being adminsitered, what they are feeding us may be killing us.
Firms like GS have had their competitors taken out, and sit on top of the drain. MOST States cannot balance their budgets and are mandated to do so.
YET...the NAZ bros have risen the most consecutive days since 1992 !!!! I say BEWARE

Duratek

No comments: