Comments on: And Now For Something Really Scary http://www.tradersnarrative.com/and-now-for-something-really-scary-1929.html Freshly squeezed market commentary & analysis Sun, 22 Nov 2009 00:00:11 +0000 http://wordpress.org/?v=2.0.2 by: Russ Abbott http://www.tradersnarrative.com/and-now-for-something-really-scary-1929.html#comment-35028 Thu, 09 Oct 2008 15:53:43 +0000 http://www.tradersnarrative.com/and-now-for-something-really-scary-1929.html#comment-35028 Another issue is that for constant earnings PE should be the inverse of a reference interest rate. So a PE of 14 is the inverse of an interest rate of about 7%. The lower the interest rate, the higher the justifiable PE. Of course that doesn't take into consideration the possibility that earnings will increase or decrease. In that case, PE depends on the current value of future earning projections and future interest rate projections, which are both pretty cloudy. So nothing is simple. Another issue is that for constant earnings PE should be the inverse of a reference interest rate. So a PE of 14 is the inverse of an interest rate of about 7%. The lower the interest rate, the higher the justifiable PE. Of course that doesn’t take into consideration the possibility that earnings will increase or decrease. In that case, PE depends on the current value of future earning projections and future interest rate projections, which are both pretty cloudy.

So nothing is simple.

]]> by: Reallyla.me » Blog Archive » Links - Trading Tool http://www.tradersnarrative.com/and-now-for-something-really-scary-1929.html#comment-35027 Thu, 09 Oct 2008 14:56:39 +0000 http://www.tradersnarrative.com/and-now-for-something-really-scary-1929.html#comment-35027 [...] A really cool graph of current price and price based on p/e - this could be a great tool for investment. I must put something together to see what kind of return I could make using this with individual stocks and indexes… [...] […] A really cool graph of current price and price based on p/e - this could be a great tool for investment. I must put something together to see what kind of return I could make using this with individual stocks and indexes… […]

]]> by: pej http://www.tradersnarrative.com/and-now-for-something-really-scary-1929.html#comment-35026 Thu, 09 Oct 2008 13:57:29 +0000 http://www.tradersnarrative.com/and-now-for-something-really-scary-1929.html#comment-35026 Something to also understand, is that an PE of 10 is NOT undervalued today. It was when gold was the standard and real inflation was non-existent. Today, official inflation is 5% and real inflation is most likely around 10%. a PE of 10 would then be barely fair-valuation :-( As I mentioned in my blog (<a href="http://realitylenses.blogspot.com/2008/10/are-we-done-yet-no-expect-lot-more.html" rel="nofollow">here</a>), markets are still very expensive, and with companies profits falling, they are likely to get even more expensive. Something to also understand, is that an PE of 10 is NOT undervalued today. It was when gold was the standard and real inflation was non-existent. Today, official inflation is 5% and real inflation is most likely around 10%. a PE of 10 would then be barely fair-valuation :-(
As I mentioned in my blog (here), markets are still very expensive, and with companies profits falling, they are likely to get even more expensive.

]]> by: primorec http://www.tradersnarrative.com/and-now-for-something-really-scary-1929.html#comment-35024 Thu, 09 Oct 2008 11:11:45 +0000 http://www.tradersnarrative.com/and-now-for-something-really-scary-1929.html#comment-35024 these numbers are somewhat exagerated due to heavy financial part of the index (and big writeoffs). It would be interesting to see the same relationship for NDX or COMPQ, or even DJ. I am sure, lower numbers are in play here. regards these numbers are somewhat exagerated due to heavy financial part of the index (and big writeoffs). It would be interesting to see the same relationship for NDX or COMPQ, or even DJ. I am sure, lower numbers are in play here.
regards

]]> by: Michael Agee http://www.tradersnarrative.com/and-now-for-something-really-scary-1929.html#comment-35023 Thu, 09 Oct 2008 03:01:24 +0000 http://www.tradersnarrative.com/and-now-for-something-really-scary-1929.html#comment-35023 Here's something even scarier. Trading down to 650 assumes earnings STAY FLAT and multiples just contract to create value. What happens if earnings continue to decline further and multiples shrink as well? I think it's telling that we are seeing moves in the market that have not been seen since...you guessed it, the early 1930's! Hate to see what it would look like with single digit p/e's. I think now's a good time to be brushing up on the trading history of the Nikkei. Looks like we are headed down the exact same road making the exact same mistakes. Here’s something even scarier. Trading down to 650 assumes earnings STAY FLAT and multiples just contract to create value. What happens if earnings continue to decline further and multiples shrink as well? I think it’s telling that we are seeing moves in the market that have not been seen since…you guessed it, the early 1930’s! Hate to see what it would look like with single digit p/e’s. I think now’s a good time to be brushing up on the trading history of the Nikkei. Looks like we are headed down the exact same road making the exact same mistakes.

]]> by: Jimmy http://www.tradersnarrative.com/and-now-for-something-really-scary-1929.html#comment-35022 Thu, 09 Oct 2008 00:41:13 +0000 http://www.tradersnarrative.com/and-now-for-something-really-scary-1929.html#comment-35022 yes, i seen this too before. it's very interesting but it's way way way too long term. one must had been around one of those few timeframes to get in. your blog and others will do. also if going by the rule, one would had missed the majority of the gains of the 1982 to 2000 secular bull market by existing in the early to mid 1990s. oh well, nothing is ever perfect. yes, i seen this too before. it’s very interesting but it’s way way way too long term. one must had been around one of those few timeframes to get in. your blog and others will do. also if going by the rule, one would had missed the majority of the gains of the 1982 to 2000 secular bull market by existing in the early to mid 1990s. oh well, nothing is ever perfect.

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