Roubini Puts Likely S&P Bottom at 600, Says 500 'Possible'

In a slightly less pessimistic statement today, Nouriel "Dr. Doom" Roubini said an S&P level of 500 "is less likely, but there is some possibility you get there" and put his S&P target at 600. Roubini's target is based on an S&P 2009 earnings of $50 and a 12x multiple. "My main scenario is that it is highly likely it goes to 600 or below" Roubini said in an interview at the CBOE Risk Management Conference in Dana Point (which one presumes did not have any Citigroup employees present).

“Even if you do everything right with fiscal and monetary policy, we’re still going to be in a recession through the end of this year and into next year,” Roubini said earlier during his speech at the options-industry conference. “The recession train left the station over a year ago, and it’s going to continue.”

Assuming Roubini's 12x earnings multiple is appropriate for the economy, one may be tempted to use Goldman Sachs' top down 2009 estimate of $40 and end up with a 2009 S&P target of 480, although if the market does drop to that point it is safe to say all bets are off.

Comments

[AlphaDude:]

500 - 600 is very possible, I wouldn't be surprised at all.

But, what a great buying opportunity, there will never again, in generations, be such a fantastic chance to get some great companies at rock bottom prices.

Mar 09 05:05 PM

[J. D. Swampfox:]

Really, it does seem that $50 is on the high side and Goldman Sachs' estimate of $40 may be more reasonable. But even if we give in on the $50, Roubini's 12X is still too high from a historical perspective. If the 12X is also subject to debate, then even 480 may be an underestimate...

Mar 09 05:07 PM

[CautiousInv...:]

Trailing ten year average earnings of the SP500 is around $50 and the median multiple at the end of a recession or a bear market is right around 11, suggesting a market bottom of 550. This is the Schiller model.

The good news in all of this is that the lower the market goes and the further P/E's fall, the larger the likely gains over the ensuing ten years. This has been borne out by many, including Crestmont research.

Mar 09 05:17 PM

[ArkansasAngie:]

"the median multiple at the end of a recession or a bear market is right around 11".

And ... according to Marketwatch today -- "But widen out the lens, and P/E ratios dropped even further in some earlier recessions. During the market low of the early 1980's recession, for example, stocks in the index were trading at a mere 8 times earnings."

So ... 8X and $40 would be an even lower number still.

Depression/Recession/C... -- The question I have is how long will these kind of numbers hang around for?

Mar 09 05:56 PM

[logicalthought:]

"...one may be tempted to... end up with a 2009 S&P target of 480, although if the market does drop to that point it is safe to say all bets are off..."

I'm not sure what the author means by "all bets are off", as the use of that phrase would presumably infer that he thinks that if it gets "THAT low", it would have to go much lower still. My thought (unless you think it's going to zero) is that the lower it goes, the more bets you want ON. My personal target for the better part of a year has been S&P 480 (12x $40 trough earnings), but if you swore to me that 10x trough earnings of $35 is a more likely possibility, I wouldn't tell you that you were crazy-- I'd just be a bigger buyer. As Art Cashin is credited with saying: “Never bet on the end of the world. You will only be right once and there will be no one left to pay you.”

Mar 09 06:36 PM

[investor88:]

Roubini the seer has been surprised once when things became worse than he predicted. Now he is at it again! hope he does not strain his luck predicting doom and gloom ahead!

If Roubini is surprised again to the downside ie sp500 below 500, say 300-400 then it may be a signal to buy? This is another possibility.

Mar 09 07:08 PM

[Sicall:]

I am more surprised by the even bigger profit of "doom and gloom" Marc Faber. Saying that we will be in for a equity rally shortly.

Thats the first time ive ever heard him say anything positive.

Mar 09 08:45 PM

[Steven Hansen:]

I am a Roubini fan, but predicting what an often irrational market will do elevates him to god like status.

Mar 09 09:54 PM

[PearlCreek:]

The PE ratios Roubini and others quote as bear market bottoms DID NOT occur on trough earnings. Russell Napier clearly debunks this myth in his excellent book, Anatomy of A Bear. The 74 bottom resulting in about a 7 PE was based on SP 500 aggregate earnings of about $9.35, the highest ever to that point. Earnings actually decreased in 1975.

The same with the 82 bottom. Aggregate SP 500 earnings were actually lower in 1983, well after the mega bull was 12 months old.

The higher probability scenario is some type of massive rally of significant price move upwards and of significant time and then a slow grinding sideways move or a slow grinding move with a downward bias over a couple of years.

I am looking for something like a move to 1000 over the next year or two and than a multiple year slide as the inflation fight takes grips and earnings recover. An SP500 of 750 on $90 earnings in 3-4 years puts you right on target historically for the start of the next great bull market.

Mar 09 10:58 PM

[zermux:]

By the time we get to a market bottom our use of P/E may have died. Dividend Yield is way better and tends to be at around 6% at the major market bottoms.

Mar 10 12:24 AM

[Trane250:]

Can it be that Roubini is in cahoots with some short sell players? Every time he makes a pronouncement, stocks take a tumble.

Mar 10 09:29 AM