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dexion10 (27.51)

Tonight I snatch Victory from the Jaws of Defeat

Recs

7

July 23, 2009 – Comments (4) | RELATED TICKERS: SKK , SJF , SPY

As many of you know I have stuck to my guns all year that the rationale for owning (most) stocks at prices above 930 on the S&P 500 is not very good at all.

More to the point I recently took a stand here in CAPS and I green thumbed a lot of shorts and 2x ETFs because the current rally struck me as way too fast and way too far.  My CAPS points have fallen into the 200s from the 2000s this year.  Just a month ago I was around 1300 after falling to the 400s

For those of you who'd like to see me recant - I will disappoint you - I believe I'm going to return to plus 2000 CAPs points soon. 

 

We've got technical overbought conditions I haven't seen in 3 years in some cases... while that was acceptable during the first 40% rally - I can't accept that here.

Now that we are more than halfway through 2009 - the present value of stocks has increased since the recovery is nearer not further away... but I still find it idiotic to own stocks above 960 on the S&P 500. Bonds yielding 7% are a much better value relative to the stock market at these levels - they offer less risk and higher normalized return at this point.

 

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Recap of my thesis - 

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2009 - Goldman Sachs says S&P earns $52 -presume actual earnings beat by  ~8% and say $56
2010 - lets assume economy grows 2-3% and earnings at 9% = $61
2011 - assume economy grows 2-3% and earings 9% = $66

Slap a 15x multiple on the  earnings and what do you have:

15x $61 = 915 by 2010 

15x $66 = 990 - by  2011 but this should be discounted to a present value

Now apply a 1 year discount of 7% on the 2011 numbers because they are in the distant future instead of 1 year out - and you get 952.    That is fair value for the S&P 500 under the bullish scenario I've described above.
---------------------------------   The market is not going to trade at it's highs for the rest of the year so I suspect there is a large decline in the cards soon and that my friends is where my CAPs points will become a topic of much  envy I hope!

 

 

 

4 Comments – Post Your Own

#1) On July 23, 2009 at 5:49 PM, InflationSilver (99.95) wrote:

Not worried about inflation at all?

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#2) On July 24, 2009 at 1:37 PM, dexion10 (27.51) wrote:

nope not worried about inflation at all - not yet - too much slack capacity for prices to rise significantly.

inflation is usually a problem when demand for goods is high because excess money has made its way into the consumers hands.  

If there is excess cash - it is stuck at the banks trying to find a way into the real world.

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#3) On July 25, 2009 at 2:45 PM, Tastylunch (29.24) wrote:

dexion10 

" nope not worried about inflation at all - not yet - too much slack capacity for prices to rise significantly.

inflation is usually a problem when demand for goods is high because excess money has made its way into the consumers hands.  

If there is excess cash - it is stuck at the banks trying to find a way into the real world"

Exactly my thoughts as well, and a pretty unpopular view in CAPS at the moment. I used to be a big inflation bull until the bailout shenangians last fall changed the game imo.

It may be we get runaway train inflation later but a lot of things are going to have chnage for that to happen.

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#4) On July 26, 2009 at 2:36 PM, dexion10 (27.51) wrote:

ouch they did it to me again - they ran the market up

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