pay attention to up coming earnings

老九

It is so easy to type in English.  I wish I can be bullish, it is a lot easier to make money in a bull market than in a bear market.  But if you look at typical PE ratios for stock in deep recession and the bottom of market, it should be around 7-8.  1929-1933 about 7 or less (no S&P yet, by estimation).  1974 is 7.3 and 1981 is 8.1, both were market bottoms.  So, given the current enormous problems we are facing, S&P 500 PE ratio should go below 10.  As of now, or March 9, we are still well above 10.  If it were to fall to PE 8, it means S&P should drop another 300-400 points or more from here.  Bears keep in mind it won't happen in 1 day.  But if you are prepared, you can make lots of money.  Bulls don't have to worry too much, we shall eventually overcome all these obstacles.  I am bear for now, but I will turn bull when we get to PE 8 or below.

GoldenSky

Sofa!

北京哥哥

库马明言：“等右边”

JL01

Thanks for sharing.

sinnet

PE ratio has less to do with bull/bear market than to do with interest rate at that time.

in 1980, interest rate was about 12%. $100 investment in saving can give you $12 return.
while in stock market, if a $100 price stock can yield $12 earning annually, its PE ratio is also around 8.

right now, interest rate is about 3-4% in savings, which should set the PE ratio in stock market to about 25 to 30.

JL01

http://seekingalpha.com/article/ ... l-s-p-500-valuation
Multi-Year Fundamental S&P 500 Valuation
April 06, 2009

Ten Years of History and Two Years of Future:
Here are the “as reported” (all in) earnings for the S&P 500 index provided by Standard and Poor’s. The list shows ten years of actual historical reports, and two years of projections by Standard and Poor’s
    * 2010: $41.49 estimate
    * 2009: $34.74 estimate
    * 2008: $14.97
    * 2007: $66.18
    * 2006: $81.51
    * 2005: $69.93
    * 2004: $58.55
    * 2003: $48.74
    * 2002: $27.59
    * 2001: $24.69
    * 2000: $50.00
    * 1999: $48.17

Synthetic Earnings A (10 years):
8 years of actual history (each successive year increased by 2% for inflation) + 1 current year estimate + 1 forward year estimate = $49.43 per index share.
Implied 2009 index level -
at 10 X = 494
at 15 X = 742
at 20 X = 989
Synthetic Earnings B (10 years):
10 years of actual history (each successive year increased by 2% for inflation) = $53.54.

Implied 2009 index level -
at 10 X = 534
at 15 X = 801
at 20 X = 1069
Synthetic Earnings C (5 years):
3 years of actual history (each successive year increased by 2% for inflation) + 1 current year estimate + 1 forward years estimate = $48.70.

Implied 2009 index level -
at 10 X = 487
at 15 X = 731
at 20 X = 974
Synthetic Earnings D (5 years):
5 years of actual history (each successive year increased by 2% for inflation) beginning with 2007 (to exclude the entire effect of the 2008 earnings problem) = $68.74.

Implied 2009 index level -
at 10 X =687
at 15 X = 1031
at 20 X = 1375

Summary:
This method tightens the range from 500/1500 to 500/1400. Realistically, though, we think it suggests something more like 500 to 1000. That’s because we have to entirely deny the current situation in order to get to the 1375 optimistic 20X high in Synthetic Earnings D.
It’s a reasonable thing to take multi-year trends into consideration to capture the concept of a business cycle, but it is unreasonable to exclude the worst data entirely from the “normalization” process. We are in a problem period. We are likely to be in a problem period for an abnormally long time. We need to moderate our earnings cycle expectations as a result.
Probably a “normalized” earnings approach would suggest a 500 to 1000 level for the S&P 500 by year-end 2009.

http://stockjock2.blogspot.com/2 ... nings-yield_17.html
Date:        S&P 500:        Price-Earnings Ratio:
Oct-62        56.5                         15.7
Sep-66        76.6                         14.0
Jun-70        72.7                         13.3
Dec-74        68.6                          7.7
Sep-75        83.9                         10.2
Mar-78        89.2                          7.9
Mar-80        102.1                  6.9
Jul-82        107.1                  7.8
Nov-87        230.3                 13.4
Oct-90        304.0                 14.1
Aug-98        957.3                 25.1

牛蛙

Thanks

maimait

This is great point. We are comparing this big bear market with previous big ones and try to see similarity to help us predict market, at the same time, it is also very important to realize the difference underlying as well.

PE ratio has less to do with bull/bear market than to do with interest rate at that time.

in 1980, interest rate was about 12%. $100 investment in saving can give you $12 return.
while in stock ma ...
sinnet 发表于 2009-4-6 15:51

Amy999

http://seekingalpha.com/article/129726-multi-year-fundamental-s-p-500-valuation
Multi-Year Fundamental S&P 500 Valuation
April 06, 2009

Ten Years of History and Two Years of Future:
Here are the ...
JL01 发表于 2009-4-6 15:58

Great!

But does US ever print that much money before?

JL01

But does US ever print that much money before?
Amy999 发表于 2009-4-7 00:31

This crisis is compared to 1929 Great Depression. So far, FED (US government) has no choice but prints as much as enough money to depreciate US dollar to win some time for the recovery.

long10

5# sinnet


This is the only right way to calculate P/E. Look at the bottom of 2002 bear market, P/E is near 30.

老九

Everyone has good points.  Inflationary senerio should be counted into the calculations, but aren't we heading that way?  One question asked was did US print lots of money during in the 1930s?  I bet they did, but every dollar they threw at the economy, it did not work.  Let's not forget after FDR's New Deal, the economy tanked again in 1937.  It was because of WWII that US and the whole world got out of the mess.  In the 1970s, the Fed also threw tons of money, and saw the stock market recover but later crashed to new lows with high inflations.  I agree that we cannot simply compare one recession to another, but I do believe we can see similarities because one thing have never changed, HUMAN PSYCHOLOGY!

Don't get me wrong, I will be more than happy to accept that I am wrong if things turn better.  But keep in mind, it could happen if not now maybe next year or so.

coolgen

thank you for sharing!

JL01

Thanks 老九!