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alstry (35.07)

PE.......where is the E?

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August 16, 2008 – Comments (5)

The Trailing 12 month PE of the Dow and Russell 2000 stocks is nil.......

Last year they were 15.69 and 37.28 respectively.

The S&P 500 trailing PE is 26.10 vs. 16.56 last year.

http://online.wsj.com/mdc/public/page/2_3021-peyield.html?mod=mdc_h_usshl

 

The above numbers is for TRAILING 12 month PEs.....the outlook for future earnings is even worse.  Now the question is if one invests in a company for its earnings.....what is a company worth if it doesn't have earnings???????

5 Comments – Post Your Own

#1) On August 16, 2008 at 11:00 AM, alstry (35.07) wrote:

General Motors Not Seeing Signs of U.S. Recovery, Wagoner Says

By Jeff Green

Aug. 16 (Bloomberg) -- General Motors Corp. Chief Executive Officer Rick Wagoner said he's not yet seeing signs of recovery in the U.S. economy or in vehicle sales following the recent decline in oil prices.

``It still feels to me like we're in it,'' the CEO of the world's largest automaker said, referring to the sluggish economy that helped push GM to $15.5 billion in losses in the second quarter. He was speaking at the Athens Coney Island restaurant in Royal Oak, Michigan, after leading a morning parade of classic GM cars from the last 100 years.

Wagoner is trying to increase cash by at least $15 billion before the end of next year to pay the bills while he tries to recover sales lost to rivals such as Toyota Motor Corp. and Honda Motor Co. GM's U.S. market share is the lowest since 1925 and the Detroit automaker has lost $69.8 billion since 2004, its last profitable year.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aMViVsPOi.34&refer=home

$70 Billion Dollars in losses in the last four years.  $70 Billion Dollars in losses.  $70 Billion dollars in losses.  $70 Billion dollars in losses.

How do you think those losses were covered.  By issuing more debt of course.  Debt that your stock broker sold to you.  Debt that our banks, insurance companies and pension funds purchased and held in their accounts on behalf of you and me.  Debt that those companies were using to justify the stock values.

GM, Ford, and Chrysler have what is approaching $1 TRILLION dollars of debt.  Much of that debt is seated in our insurance companies, pension funds, and banks.  $1 Trillion dollars is a very big number.  A very big number.  Actually a HUGE number if you care to add it up.

How do you think Americans are going to feel when there pension fund, insurance company, or bank says we can't pay you what we promised because GM defaulted on their debt????

Yesterday, Mrs. Fields announced it was defaulting on its debt.  The day before it was Wilsons.....these are just two in a growing number of debt defaults over the past month.  We just read about two companies going bankrupt within a few weeks of taking out $1 Billion in loans.

Each default affects the holder of that debt.  We are the holders of that debt directly or indirectly through our savings accounts, retirement accounts, pension plans, insurance policies.  Basically, every asset we own is directly or indirectly impacted by the soundness of our credit markets.

The defaults are growing in frequency and size.  Subprime was only the beginning(the weakest borrowers).  It is only now that we are waking up and realizing how big the hangover will be as toxic debt infected the entire mortgage industry, commercial real estate, municipal debt, private equity LBO's ect totalling Trillions....................... as a result of credit now drying up the businesses are just starting to shut down, the jobs are just starting to be lost, .....................if you think you are rich.....just look where your assets are and ask yourself is it backed by a sound credit market???

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#2) On August 16, 2008 at 11:03 AM, abitare (32.13) wrote:

Yepper, good points... NSTR

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#3) On August 16, 2008 at 12:28 PM, russiangambit (29.14) wrote:

I had a similar post recently. In the bear market you would expect P/E to fall. But it seems earninga are falling faster than price and so P/E is actually growing. It  seems to me we are all set for a big fall down to fix this imbalance.

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#4) On August 16, 2008 at 12:57 PM, alstry (35.07) wrote:

Not only are earnings falling faster than price....the earnings in the first place were simply based on a Ponzi type financing system.

More and more people, businesses, and municipalities borrowed money and gave it to the business who took that borrowed money and paid their vendors who in turn all paid their employees and made profits.

Let that go on for a while and pretty soon a huge part of the economy is simply based on the creation of debt to buy goods and services.  Let it go on a little longer and pretty soon people have to borrow money to simply pay accumulated debt obligations(GM anyone?).

As soon as you cut people off from credit.....the whole ponzi scheme comes crashing down.

 

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#5) On August 16, 2008 at 9:44 PM, jester112358 (28.72) wrote:

In reality, this fundamental instabiltiy in our financial systems has always been the case:  when you cut people off from credit the whole thing comes crashing down-as in the great depression.  The unique problem now is the high degree of leverage on the debt due to the invention of new derivative instruments like CDSs-what Buffett correctly calls financial weapons of mass destruction.  If you are willing to forswear the idea of a growth economy and go back to one backed by a real finite asset like gold, then, and, only then can you avoid this dilemma.  Capital markets are always in a disequilibrium and thus potentially subject to crashes etc.  Boom/Bust is as natural to global capital markets as day and night.  Unfortunately, the alternative of a static economy won't be accepted by either politicians or people and could only exist if population wasn't increasing exponentially.  This is also why China cannot allow their real growth to dip below 10%-they have too many people with great expectations for their future.    Otherwise communist heads will roll!

 

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