Some perspective

[RockOn]

History of continuous bi-partisan gov. statistics manipulation here:
Hard numbers: The economy is worse than you know - St. Petersburg Times

I'm waiting for Independent to chip and take it down point by point.

For me, the article totally reflects today's reality. John Williams for Economist of the year! Someone telling the sometimes unpleasant truth.

 

[RockOn]

Just looked at the DJIA p/e which is now over 90.

Really? If the DOW PE is currently 90, that is simply amazing.

 

[ziggy29]

Really? If the DOW PE is currently 90, that is simply amazing.

It's not unusual for a sky-high P/E during a weak economic period, because the 'E' tends to drop sharply or even be negative for many companies (especially the financials and train wrecks like GM). Because those depressed earnings rarely last for more than a few quarters, prices don't fall so far where the P/E would be in "normal" ranges for a healthy economy.

P/E tends to be a useless indicator in an economy and earnings environment like this one.

 

[RockOn]

It's not unusual for a sky-high P/E during a weak economic period, because the 'E' tends to drop sharply or even be negative for many companies (especially the financials and train wrecks like GM). Because those depressed earnings rarely last for more than a few quarters, prices don't fall so far where the P/E would be in "normal" ranges for a healthy economy.

P/E tends to be a useless indicator in an economy and earnings environment like this one.

Still 90 would be an amazing number for the "blue chips". I doubt that has happened before. While depressed, it's hard to see the financials or autos earnings improving anytime soon.

 

[Leonidas]

Really? If the DOW PE is currently 90, that is simply amazing.

Apparently the folks at the Dow Jones would be equally amazed, as their figures are quite different: Dow Jones Indexes

Trailing P/E (including negative) is 14.14 and Projected P/E is 11.86.

Excluding the negative you get a trailing of 13.51 and projected of 11.42.

Just to double check, I looked at the Diamonds and found P/E of 5.98

 

[Lsbcal]

Some PE's trailing and estimated: P/Es & Yields on Major Indexes - Markets Data Center - WSJ.com

 

[RockOn]

Some PE's trailing and estimated: P/Es & Yields on Major Indexes - Markets Data Center - WSJ.com

There seems to be a disconnect. I think the difference must be between trailing, estimated, and current earnings. Many DOW companies are reporting loses, I'm not sure if that is being counted as zero or if all the earnings are being added together, negative or otherwise, to get 90?

 

[Lsbcal]

Whatever the reason for the trailing PE, the market will trade on estimated PE. But the estimate is based on the sum total of individual perceptions and not on a published guess by analysts. Of course, we are all entitled to our own guess.

 

[ziggy29]

There seems to be a disconnect. I think the difference must be between trailing, estimated, and current earnings. Many DOW companies are reporting loses, I'm not sure if that is being counted as zero or if all the earnings are being added together, negative or otherwise, to get 90?

There are a few different mechanisms, I think. IMO, the bottom line remains that a weak economic environment that depresses earnings makes P/E a fairly useless measure of market valuation. And *estimated* P/E looks at the next 12 months, but these vary from one analyst to another.

The only way I know of to reliably use P/E as an indicator is this: When the stock market is near record highs and P/E is at nosebleed levels, the market is probably overvalued, and likely severely so. (See early 2000.)

 

[ladelfina]

Sorry, I should have posted a link.
BigCharts - QuickCharts

 

[Nords]

Whatever the reason for the trailing PE, the market will trade on estimated PE. But the estimate is based on the sum total of individual perceptions and not on a published guess by analysts.

I'm goin' with the "big bath" theory.

Whenever an executive has a poorly-performing sector or two, they naturally hesitate to air their issues until absolutely required by securities law. (And maybe not even then.) They may perhaps be tempted to disguise how bad some part of the company is really doing until they have a chance to [-]slap some lipstick on it[/-] turn it around and put it up for sale.

Until the economy goes bad.

Then it's a free confessional with no penance, no remorse, and all the absolution you want! "Forgive me, stockholders, for I have sinned. The economy took away $100M of our profits, but we're going to boost it to $500M by marking down of all the other [-]crap that's been stinking up the balance sheet for the last six quarters[/-] assets also just impaired by this dire recession."

I wish I could remember the link, but I read a claim that bank's declared subprime losses have exceeded the size of the subprime market. Brewer, any whiff of veracity to that rumor?

It's interesting that this appears to be a consumer-led recession instead of an unemployment recession or an inflation one. But the world is filled with wannabe consumers, not just in the U.S., and a consumer recession seems a lot easier for a multinational to recover from than unemployment or inflation.

Fidelity's portfolio X-ray tool claims that our ER portfolio is nearly 50% financials. When the "big bath" is over, I'm pretty sure that the financials will be standing by to [-]suck up all the commissions & fees[/-] help everyone get back on their feet through consolidations, acquisitions, and IPOs.

 

[d]

i think the "big bath" theory hold water. whenever there's some external bad news, it's a great time to blame that for many problem hidden under the rug.

 

[rogersteciak]

i think the "big bath" theory hold water. whenever there's some external bad news, it's a great time to blame that for many problem hidden under the rug.

There is also the unwritten rule on Wall Street that when a company has bad news to report (whatever the cause), it's best to lump it all into one really bad quarter and get it out of the way.

When management blames the company's problems on everything else except themselves, however, that is sometimes a red flag for investors to stay away. While many events are outside the control of management, good managers are candid with their investors and accept the blame when they are the ones who screwed up in the first place (Warren Buffett is good about doing this whenever Berkshire Hathaway has a bad year, for example).

 

[brewer12345]

I wish I could remember the link, but I read a claim that bank's declared subprime losses have exceeded the size of the subprime market. Brewer, any whiff of veracity to that rumor?

Wouldn't surprise me, although its the first I have heard of it. The actual subprime mortgage market wasn't that big. Could also be sloppy attribution by the media. Company XYZ write down $1 billion on a CDO squared (if you don't know what is is, consider yourself lucky), is is a subprime loss? Who knows.

 

[al_bundy]

I'm goin' with the "big bath" theory.

Whenever an executive has a poorly-performing sector or two, they naturally hesitate to air their issues until absolutely required by securities law. (And maybe not even then.) They may perhaps be tempted to disguise how bad some part of the company is really doing until they have a chance to [-]slap some lipstick on it[/-] turn it around and put it up for sale.

Until the economy goes bad.

Then it's a free confessional with no penance, no remorse, and all the absolution you want! "Forgive me, stockholders, for I have sinned. The economy took away $100M of our profits, but we're going to boost it to $500M by marking down of all the other [-]crap that's been stinking up the balance sheet for the last six quarters[/-] assets also just impaired by this dire recession."

I wish I could remember the link, but I read a claim that bank's declared subprime losses have exceeded the size of the subprime market. Brewer, any whiff of veracity to that rumor?

It's interesting that this appears to be a consumer-led recession instead of an unemployment recession or an inflation one. But the world is filled with wannabe consumers, not just in the U.S., and a consumer recession seems a lot easier for a multinational to recover from than unemployment or inflation.

Fidelity's portfolio X-ray tool claims that our ER portfolio is nearly 50% financials. When the "big bath" is over, I'm pretty sure that the financials will be standing by to [-]suck up all the commissions & fees[/-] help everyone get back on their feet through consolidations, acquisitions, and IPOs.

subprime is just a catchy phrase to lump everything together. i've read of Alt-A loans going bad at very high rates as well as prime bonds with double digit foreclosure rates

 

[Running_Man]

I'm goin' with the "big bath" theory.


I wish I could remember the link, but I read a claim that bank's declared subprime losses have exceeded the size of the subprime market. Brewer, any whiff of veracity to that rumor?

Would seem extremly unlikely In 2006 alone the subprime loan total was 600 billion, so total market must be well over a trillion dollars

Subprime lending - Wikipedia, the free encyclopedia

And subprime auto loans were 50 billion in 2006


Subprime Auto Loans Hit $50 Billion in 2006

 

[ladelfina]

al, I agree. "Subprime" is a catch-all.
Shhhh, though... we're not supposed to think about prime bonds with high foreclosure rates -- don't ask, don't tell!!! We are "lucky" not to know!

hah.. reminds me of this:

"I know what you're thinking. Did he write down six hundred billion or only five? Well, to tell you the truth, in all this excitement I kind of lost track myself. But being as this is LTCM universe, the most unregulated, over-leveraged financial system in the world's history, and would blow your real assets clean off, you've got to ask yourself a question: Do I feel lucky? Well, do ya punk?"

 

[barbarus]

Ladelfina, you've got a tough row to hoe, trying to convince this lot to exhibit anything less than starry-eyed optimism. I find the overall attitudes in this joint vis-à-vis the current situation frustrating but also a useful barometer of the fantasies held by the American upper-middle class.

Would you do something for me?
Just keep your posts organized in your memory and wait until next summer. On the 4th of July in '09, resurrect the responses your getting now and grind their noses in it.

All in the spirit of good clean fun of course.

Gemutlikeit!

Note how many respondents will be emitting phrases like:

"Ya, but this is different" or "Well, nobody could have foreseen THAT" or "Things have changed". They'll be quite furious that you were correct. Some will flat out deny they said what will be here in black & white. Others will try to twist the meanings of their former statements politician-style.

Most will be just, plain scared and desperately grasp at straws, trying to convince each other that a return to good times is imminent.

You (and I) will gain some small satisfaction at having applied logic, depth of analysis, and dispassionate perception to some rather obvious conditions.
Then the average yobs will burn us at the stake.

 

[Notmuchlonger]

Ladelfina, you've got a tough row to hoe, trying to convince this lot to exhibit anything less than starry-eyed optimism. I find the overall attitudes in this joint vis-à-vis the current situation frustrating but also a useful barometer of the fantasies held by the American upper-middle class.

Would you do something for me?
Just keep your posts organized in your memory and wait until next summer. On the 4th of July in '09, resurrect the responses your getting now and grind their noses in it.

All in the spirit of good clean fun of course.

Gemutlikeit!

Note how many respondents will be emitting phrases like:

"Ya, but this is different" or "Well, nobody could have foreseen THAT" or "Things have changed". They'll be quite furious that you were correct. Some will flat out deny they said what will be here in black & white. Others will try to twist the meanings of their former statements politician-style.

Most will be just, plain scared and desperately grasp at straws, trying to convince each other that a return to good times is imminent.

You (and I) will gain some small satisfaction at having applied logic, depth of analysis, and dispassionate perception to some rather obvious conditions.
Then the average yobs will burn us at the stake.

That is the scariest post Ive ever read on these boards. Not even ***** either..

The starred thing was the H word. Sorry gave myself 40 lashes for my insolence..

 

[Lsbcal]

Ladelfina, you've got a tough row to hoe, trying to convince this lot to exhibit anything less than starry-eyed optimism. I find the overall attitudes in this joint vis-à-vis the current situation frustrating but also a useful barometer of the fantasies held by the American upper-middle class.
...

This current situation could get a lot worse. Using FIRECalc I find that from 1910 - 1974 a portfolio with my AA and spending patterns would have a median low point 1/3 lower then I started this year with. So half of those periods would be even worse. With only about 8% decline YTD(spending and portfolio declines) this could be a many year process. But unfortuneately we all have to play the game. The situation could reverse too, who knows?

On the other hand, those FIRECalc simulations included 2 world wars, a great deflation, a great inflation, etc. Barbarus, I don't know what you mean by starry-eyed optimism. I'm trying to see the situation as dispassionately as I can because none of us knows the future.

 

[cute fuzzy bunny]

I think I'm a little more in the camp of not freaking out over something thats happened a few dozen times in my lifetime and will happen a few dozen times more.

Since its been well proven that you cant time the market other than to throw money in when its visibly ridiculously cheap or pull money out when its visibly ridiculously overvalued...your options are to play a reasonable hand and its associated reasonable odds.

If you think the sky is falling ever time theres a bear market, you'll eat yourself up or play too conservatively and lose just as badly. It'll just take longer.

What fascinates me is why people with an obvious disdain for the collective community continue to waste their productive efforts with us.

But then again I still cant figure out how a community of people who invest in wildly different manners, in drastically different products and asset classes, and with widely varied opinions can ever be balled up into some borg-like lump to be criticized.

 

[d]

sometimes the "writing on the wall" is just graffiti

 

[Notmuchlonger]

sometimes the "writing on the wall" is just graffiti

Or monkey flinging poo to make something that looks like writing..

 

[ziggy29]

Ladelfina, you've got a tough row to hoe, trying to convince this lot to exhibit anything less than starry-eyed optimism.

Yup. Again -- lovely to see those who are 100% convinced we're f****d accuse those of us who think it MIGHT not end worst case as being Pollyannaish "starry-eyed" optimists.

Let me ask you something. How many people here have said we're at the bottom and it's all up from here?

How many people here have claimed that there aren't significant economic issues that could be a headwind in the months (or years) to come?

How many people here have been ignoring some of the very real economic conditions that has led to a bear market since the October highs?

To my recollection, the answers are ZERO, ZERO and ZERO.

So I think claiming to see "irrational exuberance" is two tacos short of a combo plate. In your world, it would seem that ANYTHING other than seeing that we're doomed is "starry-eyed optimism."

Nice.

You may be right just as well as others -- hell, you may even be more likely than not to be right -- but I'll save yours, too -- and on the off chance that you're wrong, I'll looking forward to rubbing your nose in it. The thing is, if it goes down farther, you have no noses to rub into it yourself because no one here has been predicting an imminent reversal, just that we can't predict the future and that *historically*, bear markets reverse in 12-15 months. YOU are the one who are acting omniscient about the future, and if you are wrong, enjoy the embarrassment. I've seen no one here claiming we're on the verge of going higher, or that things won't get worse before they get better.

I've ONLY seem the doomsday crowd acting like they KNOW the future.

I swear, I am SICK and TIRED of people acting like there are only two possible takes on the economy, Pollyanna and Doomsday. Consider this the straw that broke the camel's back.

 

[Dawg52]

Yup. Again -- lovely to see those who are 100% convinced we're f****d accuse those of us who think it MIGHT not end worst case as being Pollyannaish "starry-eyed" optimists.

Let me ask you something. How many people here have said we're at the bottom and it's all up from here?

How many people here have claimed that there aren't significant economic issues that could be a headwind in the months (or years) to come?

How many people here have been ignoring some of the very real economic conditions that has led to a bear market since the October highs?

Oh come on now, you must have forgot about old optimistic me. BTW, you've got to come out of your shell.