SP500 PE Ratio
OperationButter
Posts: 1,672 ✭✭✭
I wonder how this will play out...
Gold is for savings. Fiat is for transactions.
BST Transactions (as the seller): Collectall, GRANDAM, epcjimi1, wondercoin, jmski52, wheathoarder, jay1187, jdsueu, grote15, airplanenut, bigole
BST Transactions (as the seller): Collectall, GRANDAM, epcjimi1, wondercoin, jmski52, wheathoarder, jay1187, jdsueu, grote15, airplanenut, bigole
0
Comments
Liberty: Parent of Science & Industry
Something's jacked up the prices or compressed the earnings, yet I'm told that earnings have been fine. So, if earnings are fine, something's jacked up the prices disproportionately. Who knows how long this "phenomenon" can continue? Not me.
I knew it would happen.
Real estate bubble.
Would this be a financial asset bubble?
Nah, it's got to be the economy doing well.
I knew it would happen.
<< <i>Im salting away my portfolio into low risk bonds ect.. >>
Low risk bonds may not be as low risk as one believes.
It ain't no thang to read a chart in retrospect. There may be periodicity, and that periodicity may repeat, but nailing the inflections is a different story.
<< <i>
I wonder how this will play out...
It will play out the same way as it has in the past....with a correction. The question 64 thousand dollar question is: by how much and when will it start.
The same percentage as usual when panic selling starts (38% or so).
and when will it start.
As soon as the market decides that Yellen is really trying to taper the QE. (Any day now).
Any bets on what amount the NEXT QE amounts will be? I'm guessing a cool $125 billion/month.
If I'm wrong, then the market and economy should both be deemed "healthy enough". We shall see.
I knew it would happen.
This is merely another data point, I wouldnt trade on any one chart alone.
BST Transactions (as the seller): Collectall, GRANDAM, epcjimi1, wondercoin, jmski52, wheathoarder, jay1187, jdsueu, grote15, airplanenut, bigole
both selling panics and buying mania tend to reverse themselves when they go past a rational tipping point.
edit: kudos for showing a 17 year chart rather than a 17 day or 17 week chart to generate discussion... what would you predict for the next 17 years?
punctuated equilibrium with a similar (though not identical, of course) sawtooth pattern of booms and busts?
Liberty: Parent of Science & Industry
There will be several shocks to the system in the next 17 years. One big difference I see, other than the normal boom bust cycles, is the potential that the dollar would no longer hold world reserve currency status. I think we are starting to see this take place already with some of the recent world events. Just a shot in the dark, but I think there will be a new world currency fractionally backed by gold that all other currencies will be pegged to within the next 17 years.
BST Transactions (as the seller): Collectall, GRANDAM, epcjimi1, wondercoin, jmski52, wheathoarder, jay1187, jdsueu, grote15, airplanenut, bigole
Knowledge is the enemy of fear
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Keep in mind that PE tends to be among the least useful of timing indicators. Those that buy and sell based mostly on PE will tend to have poor timing. One thing only mentioned in passing is the fourth line on the stats, the 10 year Treasury rate. At 2.7%, a stock market PE of 15 or even 25 doesn't look horrible when the bonds are at 37x (2.7 x 37 = 100). If the 10 year bond goes back to 6% it may also be a mortal blow for metals, because it will cost 6% more every year to carry the trade. The U.S. economy is still relatively sluggish. Sure the economy could dip back into recession. However, there is also a chance that we get more of a normal recovery or perhaps even a boom. A boom would mean massive hiring, real increases in wages, a chicken in every pot and a car in every garage
A pipe dream? Perhaps, but the economy does tend to go in cycles. We haven't had a real economic boom in a long time. A 38% correction? I get the feeling that many more folks would be caught unprepared with another 30% up leg in stocks. I'm not predicting that, but I would say the odds of 30% more up are not all that different from 30% down. So many seem to be preparing for a replay of 2008 that it is unlikely to happen any time soon. A 10% correction? Or a cyclical 20% bear market? Those scenarios would be far more likely.
<< <i>Keep in mind that PE tends to be among the least useful of timing indicators. >>
PE's are near worthless as the numbers are understated by the endless "non recurring" charges. Look at the dividend yield on the mature companies, and price time revenues on the newer firms.
Lots of that "profit" is locked up overseas as well in an effort to evade US taxes. They exist all right, but are not available for distribution to shareholders. Ask Apple who had to float bonds to initiate a dividend program.
Seems hes also looking for 1550ish.
Knowledge is the enemy of fear
What would you consider to be a huge shock to the system? Are you referring to a market decline as a shock to the system? I would consider the 911 attacks as a shock to the system, perhaps. But what shock to the system occurred in 2007 or now? Are stock market bubbles considered to be a shock to the system, or is the aftermath of the bubble considered such?
And what point in the chart in your opinion, constitutes the tipping point? In light of regression analysis, I don't see any significance in the green line, necessarily. Is there?
And a serious question for cohodk. In light of regression analysis, do you attach any significance to the possibility of lower market bottoms, say around S&P 500 at around 500 pts, not just the 17% decline you mentioned?
I knew it would happen.
<< <i>The question 64 thousand dollar question is: by how much
The same percentage as usual when panic selling starts (38% or so).
and when will it start.
As soon as the market decides that Yellen is really trying to taper the QE. (Any day now).
Any bets on what amount the NEXT QE amounts will be? I'm guessing a cool $125 billion/month.
If I'm wrong, then the market and economy should both be deemed "healthy enough". We shall see. >>
Only 38%? I thought it might equal the 60%+ collapse of the silver market since 2011.
Well, I based my 38% on reading that I've done in the past on historic data. And I must admit that until now, I've been more than a little bit apprehensive over how the Fed has been pumping "liquidity" with QE.
But, I've also come to the realization that the Fed has done this before. I remember the famous quote about the Fed "taking away the punchbowl just as the party gets going" and this does cast things in a slightly different light but it doesn't change the reality that drastic measures that have been taken this time 'round.
It seems that markets want to be markets, no matter what's being done to them, or about them. The problem I see is that markets aren't allowed to be markets right now. They are being massaged and contorted and manipulated. That the only regulations and laws being applied are only being applied if you don't have political clout. Is that the same as it ever was? Maybe so.
That's why precious metals exist in itty bitty little chunks that can be transferred on a personal level.
Concerning equities, in professional stock market parlance, I continue to step aside at this juncture. I've worked too hard to just hand it over.
I knew it would happen.
Link to 1950 to date chart
The overall trend is easy to see, as are (in hindsight) the tops in Jan 2000 and July 2007, and the bottoms in July 2002 and Jan 2009.
Here we are in 2014. A correction to 1500 or 1300 would not surprise too many people who have been at this a long time.
Even support at 800 could even be tested, but I think it would bounce very hard off this level, as it has twice before as mentioned.
A correction all the way back to 500, a level last seen in early 1995, would be very surprising to most market participants.
If it did, then it's not likely that any "long" investment position would be doing very well. Metals included.
Liberty: Parent of Science & Industry
Liberty: Parent of Science & Industry
I knew it would happen.
<< <i>A correction all the way back to 500, a level last seen in early 1995, would be very surprising to most market participants. >>
It would take a high inflation environment to bring the index back to 500
The inflation rate has not impacted the equities markets since the late 70's, early 80's. The 5% cpi per annum has been healthy for stocks on a nominal basis, but has of course slimmed down real return, particularly after taxes are paid.
But as that ugly beast of inflation rears its ugly head, the game changes. On one hand, corporate revenues generally increase, but borrowing costs soars and the tepid <2% stock dividends adjust upward to a fair market return. They rise of course by stock prices eroding. To get to a 6% mean SP500 dividend, the index would have to drop to 600.
Not pretty of course, but quite possible.
Knowledge is the enemy of fear
cramer is nervous
I knew it would happen.
<< <i>cramer is nervous
"Buy, buy, buy!"
<< <i>Book Values have been pumped by QE. I'd be more interested in unit volume sales and margins. >>
Please explain to me how?
Fwiw--I place a whole lot more value on the assets a company owns rather than number of widgets it sells.
You might also want to check truckload and railcar volumes when seeking the answer to your question. Its all googleable.
Knowledge is the enemy of fear
Liberty: Parent of Science & Industry
<< <i>500 different large companies in this particular index... that's a lot of different businesses in a lot of different industries ... surely they're not all frauds?
Bookkeeping wise, I disagree.
<< <i>500 different large companies in this particular index... that's a lot of different businesses in a lot of different industries ... surely they're not all frauds?
They have all been allowed to twist IRS, SEC, GAAP, and every other rule in the book into a pretzel. Seriously, we are preaching to the choir here - we know the rules have been bent beyond the breaking point all the while bail-outs, hand-outs, ZIRP, QE, et al have sent equities to record levels in the face of a poor economy. It's plain as day.
Edited to correct grammar.
Book Values for most companies with large amounts of debt derivatives are now supported by the FASB's dereliction of duty when they decided to let large financial institutions value that debt as they please, and not marked to the market values. Do you not understand this yet? I can report huge profits if I borrow a boatload of money to buy stuff and then decide that the loans are assets instead of liabilities. And my stock price would look pretty good in the process too!
Fwiw--I place a whole lot more value on the assets a company owns rather than number of widgets it sells.
There's a lot more to the value of a company than it's physical assets. It depends on the type of business. For instance, my company's assets are very small compared to the revenue that is produced which pays the bills and my salary. A steady business is worth a lot, and mothballed hardware is not. Some businesses are more susceptible to debt because they are leveraged and some businesses are completely the opposite.
You might also want to check truckload and railcar volumes when seeking the answer to your question. Its all googleable.
The last I looked, the BDI was down, and falling. So I'm not sure how all companies can be thriving when the aggregate numbers aren't. But that's beside the point. We clearly disagree over what's more important to a going concern. You say assets. I say unit sales and margins.
I knew it would happen.
<< <i>Fwiw--I place a whole lot more value on the assets a company owns rather than number of widgets it sells. >>
It is remarkable how quickly the assets vanish when the widget sales dry up. Case in point was K-Mart a dozen years ago. Balance sheet looked fine (I reviewed the numbers more than once), Sales were a bit sluggish, but hey, they owned the real estate didn't they?
Stock went poof in a heartbeat.
<< <i>
<< <i>Fwiw--I place a whole lot more value on the assets a company owns rather than number of widgets it sells. >>
It is remarkable how quickly the assets vanish when the widget sales dry up. Case in point was K-Mart a dozen years ago. Balance sheet looked fine (I reviewed the numbers more than once), Sales were a bit sluggish, but hey, they owned the real estate didn't they?
Stock went poof in a heartbeat. >>
Actually Kmart bought Sears and then assumed Sears' symbol upon completion of the merger. The stock did not go poof. In fact, had you bought the stock during those "dark days"--when the company didnt sell many widgets, but did have lots of assets, you could have made in excess of 15x on your money. However, if you only looked at income statements you never would have seen the value.
Knowledge is the enemy of fear
<< <i>
<< <i>
<< <i>Fwiw--I place a whole lot more value on the assets a company owns rather than number of widgets it sells. >>
It is remarkable how quickly the assets vanish when the widget sales dry up. Case in point was K-Mart a dozen years ago. Balance sheet looked fine (I reviewed the numbers more than once), Sales were a bit sluggish, but hey, they owned the real estate didn't they?
Stock went poof in a heartbeat. >>
Actually Kmart bought Sears and then assumed Sears' symbol upon completion of the merger. The stock did not go poof. In fact, had you bought the stock during those "dark days"--when the company didnt sell many widgets, but did have lots of assets, you could have made in excess of 15x on your money. However, if you only looked at income statements you never would have seen the value. >>
I know there was a lot of consolidation of the big store chains in the 80's and 90's. So many of the big ones we grew up with are long gone.
Bradlees , Zayre's , Woolworth , Ames, Caldor, Filenes , Jordan Marsh , Lechmere, Rich's most died out before the rise of online shopping.
Sears is dying in most of the old malls in my area. The malls themselves are dying too for the most part.
When they meet at the intersection of greed and corruption, the wreckage will be significant.
The last I looked, the BDI was down, and falling. So I'm not sure how all companies can be thriving when the aggregate numbers aren't
Do you know what this index is? It is NOT a measure of the volume of freight shipped by sea. It is an index of volume of freight moved, but rather the price to hire a ship to move that freight. And if you watched the industry, you would know that there was a TREMENDOUS ship building movement in the 2005-2010 time period. The industry was flooded with new ships. This huge increase in available ships has caused a massive collapse in pricing.
Here is a long term chart You are trying to compare the bubble pricing days to today and assuming the market is bad, when in fact this index has been remarkably stable with the exception of 2003-2009 which was largely fueled by oil price bubble. Just as a bubble is easily attainable when demand outstrips supply, even if by just a little, a crash is easy when supply barely exceeds demand.
Book Values for most companies with large amounts of debt derivatives are now supported by the FASB's dereliction of duty when they decided to let large financial institutions value
You really should let go of this derivative thing. Financial institutions are not the market, and in fact represent only about 15% of the S&P 500. Most of corporate has very little debt. And those that do have refinanced at incredibly low rates. The balance sheet of Corporate America has probably never been stronger in your lifetime. You've been worried about derivatives for the last 5 years and how have you hedged against this fear? Has your hedge been a hedge? Unfortunately, the next 5 years will probably result the same. And probably the next 10 years after that.
We clearly disagree over what's more important to a going concern. You say assets. I say unit sales and margins.
This is why I asked you to look at the amount of freight that was being transported across this country. I believe you will find it to be very near record levels. But to contend your point about unit volumes being more important than assets, I ask of you to consider the possibility of demand for a product disappearing virtually overnight. We've seen it happen before with many fads. But when that demand is gone, what is left? The plant and equipment and patents. Factories dont disappear overnight, but demand can. Look at Detroit, a city full of factories. Perhaps demand for autos has moved elsewhere, but those factories are still operable, waiting for a genius. For another example of assets trumping income, consider my response to MGlicker about Kmart/Sears.
Knowledge is the enemy of fear
The Sears/Kmart merger was in 2004/2005. The big stores are still alive, but are now called Amazon and Ebay. Just as carburetors replaced by fuel injectors, stores with walls replaced by stores without.
Knowledge is the enemy of fear
<< <i>I know there was a lot of consolidation of the big store chains in the 80's and 90's. So many of the big ones we grew up with are long gone.
The Sears/Kmart merger was in 2004/2005. The big stores are still alive, but are now called Amazon and Ebay. Just as carburetors replaced by fuel injectors, stores with walls replaced by stores without. >>
It was actually Wal-Mart that took out the regionals well before the net had a presence. I still shop at a nearby Super Kmart. Traffic flow is anemic. Doubt that the chain survives many more Christmases.
It wasn't walmart here in the Northeast. We had no walmarts or target stores here until around 2000 or so. The stores were all gone before that and before the internet shopping boom kicked off.