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Humble Pie

Manning the lifeboats to abandon ship would be ludicrous now, but it is easy to surmise that I was too early to the party. The rally from the March 2009 lows has been mind numbing, and the market gains speaks volumes for the bull camp. However, I believe we are topping despite the good earnings news posted by some companies this first week of earning's season. According to The Helicopter Economics Investing Guide in an April, 13th post: "Yale professor Robert Shiller has just released an updated version of his historical PE chart for the S&P500. The current level, just below 22, is around the long-term market peak in 1966 and is higher than the PE before the 1987 crash. It is well below the 30 level reached in 1929 and the 44 level reached in 2000 though. Investors should assume that the current 22 number understates the actual PE ratio. Changes in accounting rules during the Credit Crisis have made corporate earnings much higher than they would have been, especially for the financials.".

I took the liberty of locating Shiller's chart on the Internet and sure enough, the S&P 500 P/E ratio of 22 is right on the money. If you are interested in viewing the chart along with other charts for the S&P 500, then go to The data is courtesy of Standard and Poor's and Robert Shiller. Another chart they post is that of the S&P 500 Dividend Yield. I talked about the S&P 500 Dividend Yield in my April 2nd blog when Robert Prechter stated on CNBC that the dividend yield was 2.6, one of the lowest ever. Well, according to Shiller, the S&P 500 Dividend Yield is now 1.86, much lower than the 3 it registered on Black Tuesday in 1929 and Black Monday in 1987. The mean for the yield is 4.37% and the median is 4.3%. The lowest it ever registered is 1.11% in August of 2000. This is a bull market run that will end badly if history tells us anything. In fact, I still don't believe that this is a bull market run, but rather a bear market rally.

The facts speak for themselves and although it could be a rough April for the shorts because of year-over-year earnings comparisons, "sell in May and go away" is almost upon us if you adhere to that old Wall Street adage. I saw an interesting report by Bob Pisani on CNBC on Monday where he laid out the stated earnings and the estimated earnings for the S&P 500 from 2008 to 2011. In 2008 and 2009, the earnings for the S&P 500 were $49.51 and $56.86 respectively. In 2010 the estimated earnings for the same index is $78.12 and for 2011 is $93.55. That's a big leap in earnings from 2009 to 2010 - roughly a 30% increase. If we go by the P/E ratio of the S&P 500 using its current value of approximately 1,200, we get a figure of 15.3 if you go by the estimated earnings. That's in the ballpark when considering historical averages, but I don't think we are going to be growing 30% to 35% this year. I've seen some estimates for the S&P 500 for 2010 that are much, much higher than Pisani's figure of $78.12. So we'll have to see what shakes out.