Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
US House Prices Trend Forecast 2019 to 2021 - 20th July 19
MICROSOFT Cortana, Azure AI Platform Machine Intelligence Stock Investing Video - 20th July 19
Africa Rising – Population Explosion, Geopolitical and Economic Consquences - 20th July 19
Gold Mining Stocks Q2’19 Results Analysis - 20th July 19
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

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


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 to pick up a FREE copy today!

Good Investing!

Graham Summers

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 - 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