Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Dow Short-term Trend Analysis - Coronavirus Trigger a Stocks Bear Market? - 24th Feb 20
Sustained Silver Rally Coming? - 24th Feb 20
Should Investors Worry about Repo Market and Buy Gold? - 24th Feb 20
Are FANG Technology Stocks Setting Up For A Market Crash? - 24th Feb 20
Gold Above $1,600 Amid FOMC Minutes and Coronavirus Impact - 24th Feb 20
CoronaVirus Pandemic Day 76 Trend Forecast Update - Infected 540k, Minus China 1715, Deaths 4920 - 23rd Feb 20 -
Ways to Find Startup Capital - 23rd Feb 20
Stock Market Deviation from Overall Outlook for 2020 - 22nd Feb 20
The Shanghai Composite and Coronavirus: A Revealing Perspective - 22nd Feb 20
Baltic Dry, Copper, Oil, Tech and China Continue Call for Stock Market Crash Soon - 22nd Feb 20
Gold Warning – This is Not a Buying Opportunity - 22nd Feb 20
Is The Technology Sector FANG Stocks Setting Up For A Market Crash? - 22nd Feb 20
Coronavirus China Infection Statistics Analysis, Probability Forecasts 1/2 Million Infected - 21st Feb 20
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Stock Market Bubble Now the Most Expensive US Market Of All Time

Stock-Markets / Financial Crash Oct 13, 2009 - 12:51 PM GMT

By: Graham_Summers

Stock-Markets

Best Financial Markets Analysis Article140…

That’s the current P/E for the S&P 500 based on reported earnings (earnings that include write-downs). According to David Rosenberg of Gluskin Shef (and former Chief Economist of Merrill Lynch), no US market has ever been this expensive in history. The Tech Bubble, which by all accounts was an extraordinarily overpriced market traded around a P/E of 40 during its peak.


I realize not everyone likes to use reported earnings as a measure of value. After all, all those write-downs that are obliterating reported earnings are a one time event due to the worst credit collapse in 80+ years.

So let’s look at operating earnings (earnings without write-downs included). Today, the S&P 500 trades at a P/OE of 27.6. Put another way, assuming no earnings growth, if you bought the entire market at its current value today, it would take 30 years for you to break even on the deal.

Now, to be blunt, there are times when paying 30 times operating earnings for a business makes sense. If the business is a market leader worldwide, then the price is not too steep (this is roughly what Mars paid for Wrigley,  Proctor & Gamble paid for Gilette, etc). If you’re buying a brand that dominates your industry, paying 30 times operating earnings isn’t bad.

But paying 30 times operating earnings for the entire S&P 500... including businesses that are insolvent or bankrupt : AIG, Citigroup, Bank of America, etc? Sorry but I cannot imagine anyone in their right mind would be willing to pay that price.

And they’re not:

Last Friday, the market closed at its highest level for the year of 2009… on the lowest volume of the year. It’s been a hallmark of this rally that the higher it goes, the lower the volume. And when you consider that 70% of the market volume is High Frequency Trading Progams exchanging blocks of shares back and forth to collect a ¼ penny rebate, it’s clear that virtually NO ONE is buying the market at today’s levels.

After all, why would they?

David Rosenberg points out that typically when the US economy shifts from contraction to expansion (as some claim it is now) the stock market is usually price at a P/OE of 15 (roughly half its current levels). He also notes that there reason the P/OE is as high as 15 at these times is because earnings are extremely low due to economic hardships destorying profitability.

Indeed, with the exception of 2001, stocks have never been so rich after any recession in the last 55 years. Put another way, today’s S&P 500 is more expensive that at any point in the last half century when compared to the underlying economic conditions.

Bottomline: anyone going long right now is buying a very, very overpriced market. True, stocks could rally higher, but the market is already trading at what would easily qualify as bubble levels.

This is not surprising given the fact we have a bubble-crazed Fed Chairman hellbent on inflating stocks to the moon and destroying our currency so as not to repeat stock market performance of the Great Depression. He already helped manufacture two Bubbles in the last 10 years. Both of those ended horrifically.

Perhaps he thinks third time’s the charm?

This bubble is going to end, just like the last one: badly. To that end, I’ve put together a FREE Special Report detailing THREE investments that will explode when stocks start to collapse. I call it Financial Crisis “Round Two” Survival Kit. These investments will not only protect your portfolio from the coming carnage, they’ll also show you enormous profits: they returned 12%, 42%, and 153% last time stocks collapsed.

Swing by www.gainspainscapital.com/roundtwo.html to pick up a FREE copy today!

Good Investing!

Graham Summers

http://gainspainscapital.com

Graham Summers: Graham is Senior Market Strategist at OmniSans Research. He is co-editor of Gain, Pains, and Capital, OmniSans Research’s FREE daily e-letter covering the equity, commodity, currency, and real estate markets. 

Graham also writes Private Wealth Advisory, a monthly investment advisory focusing on the most lucrative investment opportunities the financial markets have to offer. Graham understands the big picture from both a macro-economic and capital in/outflow perspective. He translates his understanding into finding trends and undervalued investment opportunities months before the markets catch on: the Private Wealth Advisory portfolio has outperformed the S&P 500 three of the last five years, including a 7% return in 2008 vs. a 37% loss for the S&P 500.

Previously, Graham worked as a Senior Financial Analyst covering global markets for several investment firms in the Mid-Atlantic region. He’s lived and performed research in Europe, Asia, the Middle East, and the United States.

    © 2009 Copyright Graham Summers - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

    Graham Summers Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules