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alstry (35.46)

S&P P/E OVER 700!!!

Recs

17

July 30, 2009 – Comments (25)

Today with 53% of companies' results reported for the 2nd quarter 2009 the Operating PE is surprise, surprise "only" at 22.87. So according to CNBC and Wall Street the S&P 500 is fairly valued so please ignore reality, live in denial and BUY!!! Unfortunately the reality shown by the as reported PE is a truly mind blowing 723. I repeat 723, the previous all time high was 46."

http://www.safehaven.com/article-14045.htm

It only gets worse my friends so long as the Zombulation policies continue......

25 Comments – Post Your Own

#1) On July 30, 2009 at 12:06 AM, ipfmanager (95.92) wrote:

I missed where that article atually proved it with math or sources.  Dang....I was excited.

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#2) On July 30, 2009 at 12:28 AM, awallejr (83.97) wrote:

And Value Line has its world of stocks (1700 covering a diverse range) at around 15, which would indicate a fairly priced market overall imo.  So assuming the economy actually does start to turn up, there is plenty of upside potential to come.  Of course, should the economy tank, the opposite would be true, hence why I constantly mention future GDP as being critical to watch.

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#3) On July 30, 2009 at 1:15 AM, portefeuille (99.50) wrote:

I guess 723 is supposed to look scary. I hope people are aware of how fractions work. Say P = 1000 (that would be the S&P index in this case).

For aggregate earnings of E = (200,100,10,1,0,-1,-10,-100,-200) you get P/E = (5,10,100,1000,infty,-1000,-100,-10,-5).

So a P/E of 1000 or 10000000 or 10000000000000000000 is not much "scarier" than one of 100. The earnings E are not very different. Scare numbers would be small negative ones, like -5.

So the next time you want to scare an audience that remembers 1st grade mathematics try something like

S&P P/E OVER -7!!!

instead.

 

(if the P/E is something like -1 you might even dare the unthinkable and drop a few exclamation marks.)

 

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#4) On July 30, 2009 at 1:19 AM, portefeuille (99.50) wrote:

Scare numbers ...

Scary numbers ...

 

(but then again "scare numbers" fits quite nicely as well!)

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#5) On July 30, 2009 at 1:21 AM, portefeuille (99.50) wrote:

small negative ones

you know what I mean ...

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#6) On July 30, 2009 at 1:50 AM, Donnernv (< 20) wrote:

Alstry:

Get out of your Mom's basement and get some sunshine.  Ride a bike.  Buy an ice cream cone.

There MUST be more to your life than this crap.  Manage your restaurant better.  Something...anything.

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#7) On July 30, 2009 at 8:01 AM, alstry (35.46) wrote:

Donner,

Are you ready to get your entire estate taxed 100%?

Sales and profits are evaporating at most of the companies reporting this morning...someone will have to pay taxes.

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#8) On July 30, 2009 at 8:03 AM, alstry (35.46) wrote:

port,

Who said a 700 PE was "scary"

Marshall Law...now that is scary.

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#9) On July 30, 2009 at 8:13 AM, alstry (35.46) wrote:

And these 20-50% sales declines look scary......thank goodness for Office Max only down 16.5%...isn't government a big OMX customer?

Goodyear Q2 sales $3.9 bln vs $5.2 bln

Cummings revenue for the quarter fell 37% to $2.43 Billion

Parker Hannifin sales were $2.2 billion, a decline of 34%

Motorola profit edges higher, sales drop 32%

Kodak Q2 sales down 29% to $1.77B

Office Max Q2 sales down 16.5% to $1.7 bln

Wabco Q2 revenue $316M vs $772.9M

 

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#10) On July 30, 2009 at 8:19 AM, Crosshair (95.73) wrote:

Like someone looking at a stock with an astronomical dividend yield, he/she is advised not to jump to conclusions simply by looking at that one metric. A high Price to Earnings ratio is not definite proof that the market is overvalued anymore than a high dividend yield is a guarantee of an above average dividend stream at infinity. If anything, it merely prompts us to investigate deeper.

A high yielding stock could indicate the market has lost trust in the company's ability to pay the dividend, betting the company will eventually cut the dividend which, incidentally, will have the effect of reverting the yield back to its average.

As for the P/E ratio, this is more of a case of the market believing earnings (E) will be much higher in the future, bringing the ratio down as a result.

 With all investment decisions, it is crucial to look ahead at what is likely going to happen instead of sounding the alarms on metrics that look at how things were.

Crosshair

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#11) On July 30, 2009 at 8:23 AM, alstry (35.46) wrote:

Cross,

What about evaporating revenues??  How do you analyze a company with crashing sales and no improvement in outlook for the foreseeable future?

How about hundreds of them?  Or Thousands?  Or Hundreds of Thousands?

Who do you think will pay taxes if there is no earnings?

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#12) On July 30, 2009 at 8:53 AM, Crosshair (95.73) wrote:

As a starting point, I would look at analyst projections as lately these have been beaten and can serve as a base (typically, during recoveries, actual results come above expectations as the latter were drummed up during much gloomier times when the outlook seemed less promising).

I project in the next quarter, actual results will come in line with analyst expectations as Wall Street will have had time to catch up to the improving prospects. That being said, projections for next quarter are not calling for "crashing sales...".

One more point, while China has benefited from their stimulus spending quite nicely, we have yet to have a taste of ours.

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#13) On July 30, 2009 at 9:05 AM, alstry (35.46) wrote:

Why don't projections for next quarter call for crashing sales...

Everyone is slashing......

Cities are slashing, Parishes are slashing, Counties are slashing, and States are slashing budgets.....

Jobs are being slashed.....

Wages are being slashed......

Do you think the sales are going to magically appear...

Remember, just before a patient dies, the patients vitals often "stabilize"

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#14) On July 30, 2009 at 9:10 AM, awallejr (83.97) wrote:

Alstry, while we tend to repeat everyday, of course sales have dropped.  We ARE in a recession.  Of course companies cut costs. We ARE in a recession.  Of course unemployment rises, as a result of those cuts.  We ARE in a recession.  It is expectation of the future that controls now.  And that future APPEARS to be stable now with at least some projected growth.  None of us knows for sure.  If we knew the future life would be boring.

No one is paying 100% taxes, that is an ignorant comment.  Voters would simply boot out all the politicians and you know that.

And Marshall Law?  You are now predicting massive nationwide riots?  Please, just stop it.

I have no issue with your prognosticating.  But the exaggerating simply gets ridiculous.

 

 

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#15) On July 30, 2009 at 9:20 AM, alstry (35.46) wrote:

awa,

It is not exagerating...it is actually getting closer to being a mathematical certainty if we proceed down the same path.

It is why I am so concerned....I was caught on video making a similar prediction about New Orleans the day before Katrina happened......

none of this is too difficult to see if you just think.

We have NEVER had this kind of contraction at this rate in American history.  This is not a recession, it is a Depression...and a massive one at that.

When you don't count those who are still unemployed because they have been unable to find a job for months....you know you have an issue with the way you calculate.

When ZERO earnings is better than expected, you know you have an issue...

Our current condition will likely turn out to be MUCH Worse than the thirties....there was no debt in the thirties and government was a very small part of the economy.

Ask yourself, how does USA Inc. continue to spend $6.5 Trillion to keep our economy going when no tax receipts are coming in?

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#16) On July 30, 2009 at 9:23 AM, jmt587 (99.88) wrote:

Marshall Law was an Australian television series.  I dont' think it was very scary.  More of a romantic comedy.

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#17) On July 30, 2009 at 9:29 AM, Starfirenv (< 20) wrote:

Is that like Martial Law????????

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#18) On July 30, 2009 at 9:39 AM, Alzo10 (98.01) wrote:

I'm note exactly sure what the operating PE formula is, but I would argue a few things about the actual PE ratio.

 

In my opinion, actual PE ratios are meaningless for valuation purposes because they rely on Net Income as their primary drivers. Net Income, as most people know, can be easily manipulated and includes one-time gains, losses, revenues and expenses in its calculation. It also is not a true reflection on the business a company is doing because a company could have significant increases in net income due to sales, but if they are not collecting on their receiveables, they are not truly generating earnings. (Ultimately uncollected accounts will be expensed and again flow through NI, but the timing difference can be substantial, and as such, there could be up to a year or more of inflated or deflated NI due to simple accounting conventions).

 I could go on, but I think people get my jist (I hate reported Net Income and rarely actually look at it to value a company). So what does all this mean? It means I'm not too worried about making an over or under-valuation claim on the S&P based on PE ratios. (I too believe the S&P is over valued at the moment, but it has nothing to do with PE ratios). Just my two cents.

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#19) On July 30, 2009 at 10:29 AM, dsmo06 (< 20) wrote:

What did you predict for New Orleans the day before Katrina? A P/E of over 700? Can you please post a link to this video?

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#20) On July 30, 2009 at 10:36 AM, alstry (35.46) wrote:

I was basically at a party with a bunch of friends and indicated it would likely be the the worst natural disaster in American History....and I was surprised more wasn't being done to prepare.

 

On the Economy front, we are seeing millions of Amerincas lose their jobs and tens of millions more suffer massive wage losses, including independent contractors and small business people who are not counted in the statistics.

The gap between cost of living and income is widening and many families are suffering at unprecedented levels.

We are also seeing tax revenues to government evaporate where government has begun shutting down in some critical areas to socitey.  Police Protection is cutting way back.  Prisons are releasing prisoners.  Court Systems are shutting down.  Crime is beginning to escalate.

There are solutions to all of the above, but proper preparation must be applied.  Exactly what I am not sure, but doing nothing will defintely lead to disaster.

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#21) On July 30, 2009 at 3:59 PM, awallejr (83.97) wrote:

Ah so your constant use of the word "PREPARE"  basically meant "do something but you aren't sure what."  Bernanke is at least doing something,  time will tell if it is a good somethng or a bad something.  Private companies are doing something (things you would normally expect them to do during recessions).  Local Governments are starting to do something, which simply has to include budget cuts and increasing taxes unfortunately.

It is simply all a matter of time.  It will take time to absorb the "debt" bubble excesses. 

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#22) On July 31, 2009 at 12:43 AM, ipfmanager (95.92) wrote:

I looked at this again and I still can't see any explanation on how they arrived at these #'s.

It still doesn't matter though.... 

If anything the 700 p/e is reasonable and I would have been surpised it wasn't n/a (you can't have zero as a denominator) so 700 sounds pretty good.....if it's TTM (trailing twelve months).

I find it hard to belive that the forward/p/e is 700 or the PEG is any higher than 3.  Those are the numbers that really matter. So I wouldn't start freaking out yet.  Anyone have a link for those figures?

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#23) On July 31, 2009 at 7:08 PM, ClearEyez (28.87) wrote:

ipfmanager who cares are forward PE? Do you know what forward PE was before the recession? Forward means earnings that a bunch of clowns 'think' will happen.  Can anyone find me a time when it was better to invest in the S&P 500 when the trailing 'as reported' PE was above 17 rather then just invest in high quality bonds (or in most cases even MMF)?

Hmm lets see. Lets start in 1950. PE was below 17 until about 1959. You can invest there and the S&P was at about 55. However, that wouldn't have done you very good becuase in 1974 you could have gotten in around 63. That nearly 15 years for about 1%yr plus some dividends.  Anyone who invested after 1959 (PEs stayed elevated the whole time) would have done much worse. Lets see then PEs were nice and low from about 74 to mid 1986 when it again went over 17. Then what happend? Oh ya that little crash of 1987. Guess you shouldn't have bought over 17 again huh? Ya you once again were able to buy at a low price and a PE below 14. and low PEs prevailed again until 1991 when the SP 500 was at about 350.  Lets see if you invested in 1991 you would have held for 19years and at the  recent low in March (which we very well may retrace) you would have gotten a great 4.5%yr or so plus divs to show for it. However, you could have been parked in interm treasuries and beaten it. HIgh quality corporated and you would have beated it by way more. 

Please show me when a 17+ PE has ever been a great time to buy versus waiting for a low PE?

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#24) On July 31, 2009 at 7:31 PM, awallejr (83.97) wrote:

Kind of depends on the company.  Things like MSFT and GOOG, for example, had wild early PEs and people made fortunes off them because of their early growth rates.  PE should simply be one of many factors to consider.

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#25) On August 03, 2009 at 9:39 PM, ClearEyez (28.87) wrote:

@ awallejr

I was referring to the the PE for the market as a whole (S&P 500). It has never turned out well to invest @ a PE over 17 for a buy and hold investor.

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