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Stock Bulls are Going to get Hit Hard. S&P P/E = 140



October 06, 2009 – Comments (12)

According to Standard & Poor's, the price/earnings ratio for the S&P 500 on September 30 rose above 140. Investors were paying over $140 for each dollar's worth of reported earnings. Given the fact that this ratio has never before reached 50, this is a P/E mania like no other in stock market history. (Re here


The hope is increased earnings: the elusive profits that should be here by now. The experts sound like the chief economist of the National Association of Realtors in 2007. They offer no data to support their boundless optimism.

I never expected the FED and Co, to sacrifice it's legitimacy in order to run up the market and blow this huge bubble.  It is nice to see all these new Fool accounts created in 2009 climb to the Top of Fooldom riding the "liquitity wave". But I expect most of these "Allstars" will disappear once the FED stops printing or REAL interest rates hit.

The FED will not want hyperinflation to hit. They will put on the brakes before that happens and the US market will tank.

Got Gold? - real gold? Not the paper gold....

12 Comments – Post Your Own

#1) On October 06, 2009 at 1:11 PM, davejh23 (< 20) wrote:

...and P/E ratios typically bottom around 6 during recessions?  That would be about a 95% drop in the market.  Lets hope earnings start increasing rapidly.  This kind of drop would destroy the baby boomers.

We didn't get to that 6 P/E ratio during the dot com bust though, did we?  Maybe we can push the pain down the road again.

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#2) On October 06, 2009 at 1:16 PM, awallejr (33.87) wrote:

Well I guess I don't have to worry since the stocks I own in real life for the most part have PEs under 15 (aside from some spec stocks).

I will continue to stick with the energy/commodity/dividend paying stock thesis.  Demand will drive this not simple inflation (although that will help too).  And that demand will come from outside the US as you are starting to see.

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#3) On October 06, 2009 at 1:26 PM, bigpeach (27.65) wrote:

Haven't we been over this? Not saying you're wrong about valuations, but you're going to have to come up with a better argument than that nonsensical P/E people like to trot out because it sounds good.  

                   Earnings     P/E TTM
06/30/2010   $11.42        25.48
03/30/2010   $11.75        24.26
12/31/2009   $8.49          26.86
09/30/2009   $9.83          138.91
06/30/2009   $13.51        140.76
03/31/2009   $7.52          116.31
12/31/2008   -$23.25       60.70
09/30/2008   $9.73          25.38

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#4) On October 06, 2009 at 2:15 PM, SkinneeJ (28.72) wrote:

Let me ask the stupid question...  If P\E was 140 on the S&P, then wouldn't see see a ton of stocks that are members of the index carry high P\E's as well?  I can't even name one that has a P\E that high...  How is this calculated?

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#5) On October 06, 2009 at 2:50 PM, davejh23 (< 20) wrote:

I'm not certain, but I believe this 140 P/E ratio is based on earnings including one time charges, and excluding asset sales. 

Some companies have sold assets in recent quarters and would have actually shown quarterly losses if not for the sales.  So, annual earnings from operations may be negative, but you might still see a 15 P/E ratio reported.

Some companies reported quarterly losses, but note that excluding one time charges, quarterly earnings were $X...and these are the earnings that show they have a 15 P/E ratio. 

Using operating earnings, companies that have reported major losses are subtracting earnings from the collective S&P 500 P/E. 

Which is a more accurate indicator of the company's health?...earnings from operations, or earnings including asset sales and excluding one time charges?  It probably depends on the company.  Some of these companies with negative operating earnings may turn around and have decent earnings next year...even including one time charges and without any asset sales.  Some of them may struggle and eventually go bankrupt...and be replaced in the S&P 500.

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#6) On October 06, 2009 at 3:01 PM, jigar34 (< 20) wrote:

Numbers shown above by bigpeach explain the high PE: if you take trailing twelve month (TTM) earnings for period from 9/08 to 9/09 you get a 12 month earning number that is very small (due to the negative earning quarter ending on 12/31/08).....which in turn translates to a high PE.

I would argue this is a rare event (negative earnings quarter for S&P 500 are not common) and should be sought has a buying opportunity for long term investors.  

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#7) On October 06, 2009 at 3:08 PM, skeptic86 (39.36) wrote:

If you look at p/e10 (current price / 10 year average earnings) the market is slightly overvalued still. g'luck investing all!

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#8) On October 06, 2009 at 3:42 PM, jesusfreakinco (28.18) wrote:

The FED will not want hyperinflation to hit. They will put on the brakes before that happens and the US market will tank.

You are assuming the Fed will have things under control when hyperinflation comes a calling...  I think you are dead wrong about this.  The Fed is flying by the seat of their pants and are solely dependent on the grace of its creditors right now - Middle East, Chinese, Japanese, UK - if any of them flinch and start selling Treasuries, we'll see high inflation overnight and hyperinflation within months IMO.  And, the Fed won't be able to do a darn thing about it.


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#9) On October 06, 2009 at 8:26 PM, awallejr (33.87) wrote:

Seriously, how in the world will you see hyperinflation within months?  I am talking realism here, not some whacked out theoretical halucination.  We aren't even close to anemic inflation at the moment.  Was it Rogers or Faber  who predicted hyperinflation by the end of the year in the US?  That prediction is fast meeting the same fate as Alstry's DOW 5,000-2,000 by end of summer.

You really think the world will just dump all their Tbills overnight knowing it would wiped themselves out as well? 

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#10) On October 07, 2009 at 8:07 PM, checklist34 (98.57) wrote:

the price/book of my portfolio is less than 1.  that is not a joke, and that is after 200++% of appreciation and 300%+ of appreciation from the march bottoms.

the price/sales of the S&P remains below 30+ year averages, as does the price/book.  also price/cash flow.

I'm not saying stocks are cheap here, but we're hardly in some insanely wildly highly priced valuation range unless you are unwilling to be reasonable.

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#11) On October 09, 2009 at 10:08 AM, FreeMarkets (41.88) wrote:

The first one to sell their T-Bills (other than the Chinese) will not wipe themselves out.  They will spend their dollars as quickly as possible.  This will start a stampede, which even the Chinese will have to partake in to get some, whatever, value is left.  Right now, Fed officials are making deals with every other central banker to keep anyone from bringing the party to an end.  If they can pull it off for another decade, they should go down in history as some of the best diplomats the world has ever seen.

Sadly, a sound economy should not be based on political spin and diplomacy, but it is what it is.

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#12) On October 11, 2009 at 10:13 PM, rexlove (99.68) wrote:

I just blogged on this not too long ago.Using the same exact data I came up with a totally different conclusion.

See here:

One mistake people often make here is failing to realize that the market is forward thinking. Sure the current P/E may be high but going out to the next quarter things are totally different.

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