P/E Ticking Higher, Market Ticking Lower
Back in January I posted Here Comes The Margin Squeeze. In the post I was commenting on analyst's earnings expectations having changed by about 20% and how the markets had already experienced declining earnings.
Somewhere else I did a comparison the the S&P price from about a year earlier and that with earnings in Q3 down 4.8% and the S&P up from the year earlier that basically the market had not corrected for the declining earnings at all.
Well, Bespoken has a post today that gives a graph of the P/E of the market going back a year. So, it looks like the P/E was about 17 a year ago and now it is about 19. In order for the market to be priced back to that 17 P/E from a year ago the S&P would have to go down to 1157, or another 11%.
I assume the P/E calculation is for a full year so there is only 2 quarters where any of the problems are showing up and the margins squeezes only started showing up Q3, so that P/E is going to go higher.
Consider the debt that businesses hold. There will be a gradual increase in interest expense as debt that is not paid back is refinanced. Even though Ben tried to reduce interest rates, investors weren't buying it and companies are paying more interest. About the only thing reducing rates did was enable the banks to borrow at taxpayer subsidized rates, so in that sense it is helping banks. But at this point it looks like it is pretty much limited to the banks that are benefitting, not businesses, consumers, or governments. Lowering rates more won't bring more investors to the table for this kind of debt unless there is risk priced into the debt.
For business you've got increasing costs through energy and commodities for business, tightening consumer spending because consumers are also being hit by higher energy costs and higher debt servicing costs. Which remindes me, how the f--k in a tightening credit environment did Amercians manage to increase their consumer debt a whopping 3.3%? In a freaking month!!!! And on that point, how the heck did did retail sales fall off a flipping cliff while consumer debt was elevating to the stratasphere? Seriously, consumers sales fell off a cliff in January and I assumed there was going to be some debt reduction happening there. The pants are still falling off and the belt has to be tightened about another six notches and that's going to be a disaster for P/Es.
On a different point, Bespoken had another post that gave me a chuckle. They have a graph of Citigroup and point out that the dividend had reach a very attractive 7.43% right before it was cut from 54 to 32 cents per share. The shares have fallen so much the dividend is getting into a very attractive range again and only have to fall about $3 more dollars for the dividend to recover to its pre-cut yield.