AnomaLee (29.35)

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'The Roaring Twenties' / Buyer Pyschology / Standard Oil vs Citigroup & Glass-Steagall Part 2

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August 10, 2008 – Comments (9) | RELATED TICKERS: SDS , EEV , QID

These were the closing valuations for the S&P 500 on Friday..

'The Roaring Twenties'
- 25.66 for that matter...

- No... I did not make this up. This was a screenshot taken directly from the WSJ.

- The Forward P/E finally reached 15 this week.

- According to my simple math in order for this to happen earnings would need to increase by 71%
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Below is an image from May so it's a little dated. However, it will show you how history has treated P/E ratios above 20

*During one of the longest consecutive streaks of weekly declines in June(six weeks) the S&P never traded below a trailing 20 P/E

Buyer Pyschology

Question #1: "Gas prices have recently declined. Are you more inclined to purchased gas?"

Question #2: "Stock prices have recently risen. Are you more inclined to purchase stocks?

Question #3: "Home prices have steadily declined. Are you more inclined to purchase a home?"

I'll comment on this later...

Standard Oil vs Citigroup & Glass-Steagall Part 2

Let's get into some law, because without the repeal and passing of laws Citigroup would not legally exist

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http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act

The Gramm-Leach-Bliley Act, also known as the Gramm-Leach-Bliley Financial Services Modernization Act, Pub. L. No. 106-102, 113 Stat. 1338 (November 12, 1999), is an Act of the United States Congress which repealed the Glass-Steagall Act, opening up competition among banks, securities companies and insurance companies. The Glass-Steagall Act prohibited a bank from offering investment, commercial banking, and insurance services.
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It's rather old news. But, when you consider the Mortal Kombat Citigroup has waged on its shareholders by losing over $100 billion of value for its shareholders in less than a year and the trouble surround Fannie and Freddie it's easy to assume that there will be further regulation.

This is an easy call because many financial regulators understand the moral hazards created by these all-in-one financial money centers. Comparing the historic similarities to the Great Depression and real estate I bet they'll re-enact this law and Citigroup will be broken up much like Standard Oil was pre-WWII.

Citigroup = Fatality!

9 Comments – Post Your Own

#1) On August 10, 2008 at 2:53 AM, AnomaLee (29.35) wrote:

You can't make this stuff up...

UBS Agrees to Auction-Rate Pact
"Interest rates were supposed to be reset by weekly or monthly auctions, at which investors could cash out if they wanted to. Until the market collapsed in February, investors got the impression there was heavy demand for the securities because the auctions went off without a hitch. They weren't told how often Wall Street dealers stepped in to support the auctions with their own bids.

UBS submitted such bids in all of its auctions, according to Massachusetts regulators, who said the Swiss firm acted to prevent auction failures in no less than 69% of its 57,436 auctions between January 2006 and February 2008."

Millions of Women Who Had Abortions Don't Know It: Ann Woolner
The U.S. Department of Health and Human Services has drafted a rule that would call it abortion when a contraceptive prevents a fertilized egg from embedding itself in the uterine wall.

Economic Preview: Consumer spending heading for a fall
With the stimulus checks just a memory, U.S. consumer spending is set to decline in the third quarter for the first time in 17 years, economists say.

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#2) On August 10, 2008 at 10:58 PM, camistocks (54.93) wrote:

Well, apparently we have different kind of information/data.

In 1929, at the top, the PE ratio of the market was above 30. In 2000, at the peak, the PE ratio was again above 30. At the peak in October 2007, the PE was around 18. So nowhere near the overvaluation in previous peaks.

It is normal for the market to show high PE's during bear markets/recessions, since earnings are bad and thus are driving up the PE ratio. Just look at the bottom in 2002 for example, when the PE was again above 30. (BTW very interesting that currently the PE ratio, according to my source, has not risen significantly. Maybe earnings are not that bad after all?)

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#3) On August 10, 2008 at 11:13 PM, camistocks (54.93) wrote:

BTW, what a brutal game trailer! Do teenagers play this? Or older people too? :-)

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#4) On August 10, 2008 at 11:51 PM, AnomaLee (29.35) wrote:

"At the peak in October 2007, the PE was around 18. So nowhere near the overvaluation in previous peaks."

cami,

Let's be a little more reasonable and agree to not compare today to the two greatest stock crashes in history. If you want to begin I will counter that it's not good to tread towards the same territory.

Also, it's not 'normal' to see P/E expansion during recessions or credit contractions. This 'phenomenon' only began during the past two decades a period when there were technological advances which resulted in historic gains in productivity along with financial 'innovation' and credit expansion.

These performance enchancers created a high-performing economy and change the perception of value and "justified" P/E expansion. We had an economy injected with performance enhancers which is the same thing that happened to baseball over the same period.

And just like today we're discovering the true effects of these performance enhancers and cracking down.

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#5) On August 11, 2008 at 12:07 AM, AnomaLee (29.35) wrote:

**"And just like baseballwe're discovering the true effects of these performance enhancers and cracking down."

cami -
That trailer is for the game Mortal Kombat. And yes, it's very violent. Being a former gamer I know people of all ages who play similar games. The most popular violent title is definitely the Grand Theft Auto series.

Here's a trailer... I found it humoring

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#6) On August 11, 2008 at 2:37 AM, AnomaLee (29.35) wrote:

**As a note the P/E for the Nasdaq 100 is approaching 30

17 years:
- consecutive years the UK economy expanded
- consecutive years U.S. consumer spending expanded

You don't go that long without some pullback...

If you wish to exclude the entire period of the Nasdaq bubble since 1940 the highest P/E for the S&P 500 was 26.12 during the 4th quarter of 1991 [1*]

[1*] Source: Directly from Standard and Poors.
- It can be found below in Excel format.
- http://www2.standardandpoors.com/spf/xls/index/sp500pe_ratio.xls (Link)

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#7) On August 12, 2008 at 2:42 AM, camistocks (54.93) wrote:

Funny clip, I especially liked the part with Liberty City and Gun ownership. Is that a Ron Paul allusion?

GTA 4 is definitely a brutal game! I don't know but did someone at the company lose a close person who had been hit and died by a car accident, in front of their eyes? Or was shot by a moron?

A videoclip about the game:

http://www.gametrailers.com/player/33327.html

Personally I think this kind of game will encourage every psycho to go and hit some people. Of course the company will say: hey, it wasn't me! I just want to make some money!

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#8) On August 12, 2008 at 6:51 AM, camistocks (54.93) wrote: