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Old 03-07-2009, 12:52 PM   #61
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There are some goofy numbers being thrown about.

If one took the value of all banks and other financials in the S&P 500 (SPX) to zero, (share value of zero) the SPX would be at about 620 today. (Close was at 683.38) Yes, there would probably be a panic associated with that, but it would have some trouble driving the price down much further. The financial sector of the S&P 500 has already dropped some 80%.

Currently healthcare is up to 17% of the SPX, and technology stocks are the second largest area at just under 17%. All financials make up just 9.2% of the SPX.

The Shiller 10 year averaged earnings figure (E10) is probably the best number to use in figuring P/E valuations during a recession, as earnings are unpredictable with recession effects like one-time writedowns. Call it about $58 a year over the last 10 years, as ...Yrs to Go noted above.

The current index 'price' to 10 year average earnings ratio (P/E10) is pretty well correlated to market bottoms and subsequent long term rates of return. (Today's P/E10 is about 11.8) Over at Bob's Files, Odds and Ends, Bob has put some neat charts together to show the value of P/E10 over time, and real returns in the market over subsequent periods.



P/E10 doesn't dip below 10 very often. The most notable case, where it reached 5, was during the Panic of 1917 and the Great Pandemic of 1918-1919, where city centers were abandoned, businesses went bankrupt, and life insurance claims skyrocketed.

Bob found a really good correlation between P/E10 and stock market performance for the next 20 years, getting an R-squared value of 0.61. (That is, 61% of the stock market performance over the following 20 years is explained by the starting P/E10 ratio.)

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Old 03-07-2009, 01:11 PM   #62
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Originally Posted by simple girl View Post
Fascinating to hear her story. She says she worries about her children/grandchildren if it turns out that we are in/going into a depression. She doesn't feel our generation is prepared to handle living on so little, sacrificing like they did to get by.
No way could today's generation live through what she experienced.
1st - today's population is 310m vs 122m - so all of us running out and establishing subsistence farms is out.
1930 United States Census - Wikipedia, the free encyclopedia
2nd - a large percentage of the population was working in farm related occupations - more than 60%
3rd - people's expectations were different
- didn't expect help from the Federal Gov't.
- were used to hard work
- didn't have many of what we would call the basics of today

So people behaving similar to the 1930s is very doubtful.

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I think it would be a great struggle for many, but, somehow, we would pull through...it is human nature to survive.
The question is not if but how. What would that "pull through" look like?
If we get to that point, it will not be pretty - don't expect a rerun of "The Waltons". Most people do not have the support structure of the past - extended families or even families that live near eachother.
Expect people to vote for the person who promises gives them hope and the belief that they can get out of the situation without pain. That is wasn't the people's fault but others - who will be brought to trial.

Expect increases in: crime, drug use - legal and illegal, spousal abuse, homelessness, prison population, racial tension, isolationism, mental depression, disparities in income, extremist groups.

As in the past the government will spend now and say it will be paid off. This will all end with inflation - see the end of the USSR.

- My hope - a rally in the stock market - to get out of it. A rally in home prices - to get out. I will then reset from there. Hope along with me.
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Old 03-07-2009, 01:18 PM   #63
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No way could today's generation live through what she experienced.
1st - today's population is 310m vs 122m - so all of us running out and establishing subsistence farms is out.
1930 United States Census - Wikipedia, the free encyclopedia
2nd - a large percentage of the population was working in farm related occupations - more than 60%
3rd - people's expectations were different
- didn't expect help from the Federal Gov't.
- were used to hard work
- didn't have many of what we would call the basics of today

So people behaving similar to the 1930s is very doubtful.



The question is not if but how. What would that "pull through" look like?
If we get to that point, it will not be pretty - don't expect a rerun of "The Waltons". Most people do not have the support structure of the past - extended families or even families that live near eachother.
Expect people to vote for the person who promises gives them hope and the belief that they can get out of the situation without pain. That is wasn't the people's fault but others - who will be brought to trial.

Expect increases in: crime, drug use - legal and illegal, spousal abuse, homelessness, prison population, racial tension, isolationism, mental depression, disparities in income, extremist groups.

As in the past the government will spend now and say it will be paid off. This will all end with inflation - see the end of the USSR.

- My hope - a rally in the stock market - to get out of it. A rally in home prices - to get out. I will then reset from there. Hope along with me.
You certainly pointed out some things that I hadn't thought of. I will hope right along with you for a rally in the stock market and in home prices. These surely are some scary times.
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Old 03-07-2009, 02:01 PM   #64
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.....and to think all along I've been happy....guess this shows me a thing or two...
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Old 03-07-2009, 02:16 PM   #65
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Originally Posted by dex View Post
No way could today's generation live through what she experienced.
1st - today's population is 310m vs 122m - so all of us running out and establishing subsistence farms is out.
1930 United States Census - Wikipedia, the free encyclopedia
2nd - a large percentage of the population was working in farm related occupations - more than 60%
3rd - people's expectations were different
- didn't expect help from the Federal Gov't.
- were used to hard work
- didn't have many of what we would call the basics of today

So people behaving similar to the 1930s is very doubtful.



The question is not if but how. What would that "pull through" look like?
If we get to that point, it will not be pretty - don't expect a rerun of "The Waltons". Most people do not have the support structure of the past - extended families or even families that live near eachother.
Expect people to vote for the person who promises gives them hope and the belief that they can get out of the situation without pain. That is wasn't the people's fault but others - who will be brought to trial.

Expect increases in: crime, drug use - legal and illegal, spousal abuse, homelessness, prison population, racial tension, isolationism, mental depression, disparities in income, extremist groups.

As in the past the government will spend now and say it will be paid off. This will all end with inflation - see the end of the USSR.

- My hope - a rally in the stock market - to get out of it. A rally in home prices - to get out. I will then reset from there. Hope along with me.
But we also have things that would make it easier. For example, transportation is dramatically different, we can get food around the country.

I read some about the CCC this past summer when we were campground hosts at a campground built by the CCC. I no longer remember percentages, but a good number of the young men went AWOL. Problems with liquor, problems with the very hard work, problems with authority. People weren't supermen or women back then either.
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Old 03-07-2009, 02:51 PM   #66
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But we also have things that would make it easier. For example, transportation is dramatically different, we can get food around the country.
The infra - structure is better. The intra - structure is not. And that is the key.
The people in the '30 survived because:
1. they had the family, and social support structure that helped to keep them going during difficult times. This can not be minimalism.
2. Their work experience was primarily physical labor - hard work - the transition to survival mode was easier.
3. They knew how to do many things for themselves - from baking to fishing
4. Their expectations before the depression were simple, work, food and maybe a radio.
5. Expectations from the government minimal.
6. No 24HR cable news.
Compare all those things with today - all are the opposite and to an extreme.

Quote:
Originally Posted by Martha View Post
I read some about the CCC this past summer when we were campground hosts at a campground built by the CCC. I no longer remember percentages, but a good number of the young men went AWOL. Problems with liquor, problems with the very hard work, problems with authority. People weren't supermen or women back then either.
Agree with that. Sometimes how painful a situation is not determined by where you are but how far you have fallen. Today's expectations are a job with promotions, house, cars, cable TV, LCDs and getting better every year. To fall from those expectations would be greater than from the expectations of those who grew up in the 1920s. So given the same situation as the 1930s today, I would expect greater social disruptions, less social cooperation and greater pain than the 1930s.
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Old 03-07-2009, 03:35 PM   #67
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Quote:
Originally Posted by dex View Post
1. they had the family, and social support structure that helped to keep them going during difficult times. This can not be minimalism.
2. Their work experience was primarily physical labor - hard work - the transition to survival mode was easier.
3. They knew how to do many things for themselves - from baking to fishing
4. Their expectations before the depression were simple, work, food and maybe a radio.
5. Expectations from the government minimal.
6. No 24HR cable news.
Compare all those things with today - all are the opposite and to an extreme.
I think Dex nailed it and I can't think of one thing to add.
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Old 03-07-2009, 03:38 PM   #68
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Yep. Looks like we're doomed. Might as well end it all now.

Dex, can I have your plasma TV since you aren't going to need it any more?
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Old 03-07-2009, 03:45 PM   #69
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3. They knew how to do many things for themselves - from baking to fishing
I've thought about this in regards to a worst case scenario. We've got a paid off house and three acres of land with a trout stream in the back yard. However, we don't know how to garden (successfully), can the produce or bake. I suppose we would be motivated to learn in a hurry though.

We do know raising chickens is easy and we can worm a hook.

In some ways, living like this might be better than sitting in a cubicle.

When I was growing up, my parents had a log cabin on 120 acres with a trout stream. We spent weekends there and didn't have running water or electricity. I know I could live like this and enjoy it for the short term. There would be plenty to do to stay busy.
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Old 03-07-2009, 04:39 PM   #70
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Originally Posted by M Paquette View Post
There are some goofy numbers being thrown about.

If one took the value of all banks and other financials in the S&P 500 (SPX) to zero, (share value of zero) the SPX would be at about 620 today. (Close was at 683.38) Yes, there would probably be a panic associated with that, but it would have some trouble driving the price down much further. The financial sector of the S&P 500 has already dropped some 80%.

Currently healthcare is up to 17% of the SPX, and technology stocks are the second largest area at just under 17%. All financials make up just 9.2% of the SPX.

The Shiller 10 year averaged earnings figure (E10) is probably the best number to use in figuring P/E valuations during a recession, as earnings are unpredictable with recession effects like one-time writedowns. Call it about $58 a year over the last 10 years, as ...Yrs to Go noted above.

The current index 'price' to 10 year average earnings ratio (P/E10) is pretty well correlated to market bottoms and subsequent long term rates of return. (Today's P/E10 is about 11.8) Over at Bob's Files, Odds and Ends, Bob has put some neat charts together to show the value of P/E10 over time, and real returns in the market over subsequent periods.



P/E10 doesn't dip below 10 very often. The most notable case, where it reached 5, was during the Panic of 1917 and the Great Pandemic of 1918-1919, where city centers were abandoned, businesses went bankrupt, and life insurance claims skyrocketed.

Bob found a really good correlation between P/E10 and stock market performance for the next 20 years, getting an R-squared value of 0.61. (That is, 61% of the stock market performance over the following 20 years is explained by the starting P/E10 ratio.)
Excellent post.

We had these discussions early in the life of this board. The consensus was that this kind of thinking was silly. Our all time high count poster pointed out that Shiller was such an idiot that following his ideas would have caused one to miss the whole mega-bull of the mid and late 90s.

How things change! Now people are talking (seriously I guess) about S&P of 150. Folks, this is flat out insane. This board can be dangerous to your mental and fiscal health.

The hobby du jour, here and elsewhere, is to see how much further we might fall if we were to reach earlier bear market lows. I just did this, using Shiller's data, and his P/E10 as the value metric.

Fraidy-cats best not look. I went back only as far as the July 1932 bottom. P/E10 was 5.84. To equal that we would have to lose another 50%, down to 332. Long rates were 3.5%. Next notable bottom was December 1974. P/E10 was 8.29. We'd lose another 30% to equal this, at S&P 472. Long rates were 7.43%. Worse than '74 was August 1982, where S&P bottomed at P/E10 of 6.64. Down 44% more from today would get us there, at 378. Long rates were 13.06.

Now this is really bearish sounding stuff. On the other hand, we might note that at all of these bottoms treasury interest rates were higher. Except for 1932, much higher.

Another thing that jumps out is that episodes of p/E10 lower than today's value are actually pretty rare. The last time we equalled today's value of 11.77 was almost 25 years ago, in January 1986. Interst rates were still quite high at 9.19%. Most of WW2 was spent at P/E10 above 10. It bottomed out at 8.51 in May of 1942, when any of our Victory at Sea fans could testify that it looked like the allies were toast in the Pacific, and before it became evident that Jerry was going to lose his way in Russia.

Otherwise, the decade of WW1 and the flu pandemic, as well as late '74 to mid 80s were the only long periods of low valuations. Much of the 30s was spent with high values.

All this and much more can be seen by anybody who wants to look at Professor Shiller's website at Yale.

I believe ideas that are gaining currency that we will go down to a very low level and just stay there are not the way the world works. When it turns, it will be violent and many cash-heads will be frightened and wait for another chance that may well not come.

If it were not for the new administration gunning for business scapegoats and scaring the hell out of the monied class we would have turned the corner already.

Ha
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Old 03-07-2009, 04:40 PM   #71
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Both parents lived through the depression. Their stories were quite different, even though they lived perhaps a hundred miles apart at the time. Mother's family was primarily farm based with good educational background and deep family/community roots. Father's family was mining based with little family and not much community support. Mother's family weathered the storm with difficulty. Father's family was broken by it. My dad wrote an autobiography which my mother never shared with me after he died. Upon her death I found it and tried to read it. I've never been able to read more than a page or two without becoming overwhelmed with what my dad, his family, his community and his part of the "world" went through. His life story (as much as I've been able to read) haunts me. He shared very little of it while he was alive, but when he was in the final stages of Alzheimers, some of it came out in little bits and pieces as he regressed to a man of perhaps 20 in the throes of the GD. Putting together what I learned from him with his autobiography tells me that we don't have a clue what hard times are.

I will join Dex in hoping (even praying) that we never (that our children) never face such a time.
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Old 03-07-2009, 06:17 PM   #72
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I offer the below in support of the "it's not going to get that awful" thesis. I have not independently verified the info.

The only other 2 times that saw the S&P or DJIA at 12-year lows over the past century were 1932 and 1974. In hindsight, both instances turned out to be the “buying opportunity of a lifetime.”

The last 2 months saw the worst Jan-Feb market decline in the S&P’s 80-year history (-18.6%). The second worst Jan-Feb decline was in 1933 - which then saw a 78% gain from March through year-end. And of the biggest 7 Jan-Feb losses, only 1 saw the market continue declining through the end of the year (ironically, that was 2008, last year). Of the other 6, the average March-through-year-end gain was +32%.
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Old 03-07-2009, 06:41 PM   #73
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Sometimes how painful a situation is not determined by where you are but how far you have fallen. Today's expectations are a job with promotions, house, cars, cable TV, LCDs and getting better every year. To fall from those expectations would be greater than from the expectations of those who grew up in the 1920s. So given the same situation as the 1930s today, I would expect greater social disruptions, less social cooperation and greater pain than the 1930s.

Dex, this is very wise. Also I think that falling expectations could result in violence. There is so much hatred and blame going around. Hatred for the financial CEOs and blame against the Obama administration for raising taxes and other policies.
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Old 03-07-2009, 07:32 PM   #74
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There is so much hatred and blame going around. Hatred for the financial CEOs and blame against the Obama administration for raising taxes and other policies.
At some point there is going to be a backlash against Government employees as well. With layoffs, lack of pensions and lack of health care in private industry things are getting too out of whack.
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Old 03-07-2009, 11:13 PM   #75
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I hate to say it but all of this negative news is starting to make me think that we might literally see "Blood in the streets" soon
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Old 03-08-2009, 01:28 PM   #76
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I hate to say it but all of this negative news is starting to make me think that we might literally see "Blood in the streets" soon
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Old 03-08-2009, 01:49 PM   #77
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Old 03-08-2009, 01:56 PM   #78
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Stand in line darlin'......
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Old 03-08-2009, 02:40 PM   #79
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My Mom (85) and I were talking about the depression the other day and what bothered her the most she said was a lack of food. Being one of ten children and poor as church mice meant there wasn't much to go around. She said her mother baked 8 loaves of bread a day and they would be gone by night since that was the most they had to eat. Despite that she said they were very happy, sharing 1 beat up bike from the town dump for all the kids. She said that in a good year they would get a coloring book for Christmas and in a bad year they each got a couple of PAGES from just 1 coloring book.
I think today's kids would find it difficult to receive so little for the hyped up holiday that is Christmas.
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Old 03-09-2009, 09:31 AM   #80
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The $26 in earnings includes all the massive writedowns and impairments that were taken recently. You can only write down an asset from 100% to 20% once, so I don't think the $26 December earnings figure is a good measure of "recurring" earnings. That is why Shiller averages earnings over 10 years. By that calculation earnings currently stand at $57.74, which would put S&P 150 at a 2.6x multiple - the lowest ever recorded by a long shot.
Thanks for the reality check on earnings. I saw that big drop and thought "Holy ___ , this is worse than I thought".
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