pelican

Don't Be Fooled by the Dead Cat Bounce

I'd like to see how many bear market rallies of 20%+ occurred during the bear markets of 73-74 and 81-82, not just during the Great Depression. Their are similarities with the Great Depression but there are many differences, so I don't think using it as the yardstick is necessarily appropriate. That said, if the Great Depression represents the worse case scenario, where the market tanked due to the economy (worse than today) and rich valuations (higher than those at 2007's peak), then the current market should bottom before the 35 months it took during the Depression. If it takes 26 months, for example, it would mean the market will bottom at year-end. By the way, the author makes it seems as if there is a lot more bullishness out there now that the market has rallied but I'm not seeing that, at least not on this website.

This 'Band-Aid' Approach Is Getting Old

I agree with the adage, the cleanest cut heals the quickest. I think the article is saying that. But I would like to hear more concrete solutions. The poster above (constructe) wrote: "We need a legal remedy that can purge these from our books and prevent the same thing from happening again." I think this makes sense. Everyone knows something needs to be done and like the author said, the band-aid approach is wearing thin. It does nothing to increase consumer, business or investor confidence and as long as the huge amount of uncertainy remains, progress will only be incremental. I don't have all the answers but it is clear we need aggressive solutions because band-aids won't stop the hemorraging. Otherwise get used to the feeling of being "behind the curve" for a considerable period.

Siegel vs. Standard & Poor's

Just to clarify, I meant the financial sector's lack of earnings contribution may be masking a cheaper market than what it appears to be based on total reported operating profits.

Siegel vs. Standard & Poor's

The article makes several excellent points. I can't really disagree with it. But SteveTN makes an excellent point too. P/Es are a function of earnings growth and interest rates. As you mentioned, 1982 interest rates and inflation were high. In 1932, the economic situation was even worse as was deflation. The problem with comparisons is no two recessions are alike and the sample size isn't large enough to say what the bottom P/E will be. That said, I think the article presents a good case that the market is overvalued. Even if we use a 15 multiple - to reflect a low interest/inflation environment - on next year's earnings, it would appear 600 on the S&P is fair value.

But just to play Devil's Advocate, I noticed on the S&P spreadsheet that operating earnings in 1997 were around $40 and the Index was were it is now. While tech stocks and their high multiples skewed the P/E to the upside at that time, I wonder if the financial sector isn't doing the same on the downside. When I see a companies like Proctor & Gamble, J&J, and so forth selling at 12x next year's earnings, it makes me wonder if this isn't a good time to be a selective buyer.

4 Ways to Tell if This Bear Market Has Really Bottomed

I have been reading a lot about how cheap this market is but I can't completely understand why. Some focus on current p/e, for example, but to me that's meaningless. Forward earnings are what matters. Some talk about next earnings on the S&P 500 coming in around $80 but that's a "bottom up" number, a figure most agree is was too optimistic. In recent weeks, a few of the major brokerage houses have dropped their "top down" earnings projections for the S&P 500 to $53, or $55, or $65. That suggests a forward p/e of 13-17x. Reasonable, but not cheap. And my suspicion is that forecasts will continue to come down. We aren't even in 2009 yet! So what's this talk about stocks being so cheap? You could extrapolate and look a few years down the road and, yes, stocks look cheap but that exercise requires a certain amount of faith and the market doesn't discount that far ahead. Personally, I'm using a 15x multiple and based on forward earnings for 2009 and 2010. Therefore, I see the market has being pretty closed to fair value.

A few other thoughts. If November 20th is the bottom, it would be the first time I can recall that so many people have identified the bottom right have it has occured. Also, if this is the worst economic situation we've faced since the Great Despression, does it make sense this bear market lasted only 13 months (top to bottom)? The average is 10 months and severe bear markets take 18-24 months. I have trouble reconciling that.

Low Rates, Big Problems

I agree with your article. I can't understand why some people who obviously bought homes to get wealthy are being rewarded at the expense of those who were more prudent. And does saving a few hundred dollars a month on your mortgage make much difference to those who are already ten - if not hundreds - of thousands of dollars underwater? So someone bought a house for $500K three years ago that's worth $300K today. If prices stopped falling tomorrow and started to increase at 3% a year or the rate of inflation, it would take 17 years to get back to that $500K mark. First, I'm not sure that person wouldn't still walk away. Second, I'm not sure who would qualify under this new plan since the details are not all there. Finally, the market will eventually make adjustments once the artificial rate is removed, thus only slowing the inevitable, as Peter said.

Stocks Are Not Too Cheap

I would have liked to see some metrics to back up your opinion. What is the foward p/e on the S&P 500? At what level do you think the p/e is reasonable?

If You Think the Dow Did Well Today, You're Wrong

Thanks for pointing how wrong I was. My portfolio gained 4% today and I thought I should be happy!

For ALL the reasons others have posted, this article shows you cannot be objective. You've lost credibility.