Comments on: How The Price Earnings Ratio Can Fool You http://www.tradersnarrative.com/how-the-price-earnings-ratio-can-fool-you-2594.html Freshly squeezed market commentary & analysis Sat, 21 Nov 2009 13:04:33 +0000 http://wordpress.org/?v=2.0.2 by: dax http://www.tradersnarrative.com/how-the-price-earnings-ratio-can-fool-you-2594.html#comment-54462 Wed, 26 Aug 2009 13:34:07 +0000 http://www.tradersnarrative.com/how-the-price-earnings-ratio-can-fool-you-2594.html#comment-54462 To ignore PE ratios at this point of a supposed recovery is naive....history shows that initial "bounces" are sustained by one time inventory recovery and in this case, government backing....and your theory I guess, is that companies will grow into the earnings. Unfortunately, these "earnings" may not be coming back this year or for a while. our economy has suffered a unique hit to its base case -which was, consumption at any cost, with record levels of debt and lots of leverage to support it all. De-leveraging takes time to allow the unwinding. Prices ran up not on fundamentals (PE, dividends p/b) but on fear...Professional money managers fear of being left behind - and then being fires as a result....nobody likes being unemployed Thus PE ratios in this case are telling us a clue To ignore PE ratios at this point of a supposed recovery is naive….history shows that initial “bounces” are sustained by one time inventory recovery and in this case, government backing….and your theory I guess, is that companies will grow into the earnings.

Unfortunately, these “earnings” may not be coming back this year or for a while.

our economy has suffered a unique hit to its base case -which was, consumption at any cost, with record levels of debt and lots of leverage to support it all.

De-leveraging takes time to allow the unwinding.

Prices ran up not on fundamentals (PE, dividends p/b) but on fear…Professional money managers fear of being left behind - and then being fires as a result….nobody likes being unemployed

Thus PE ratios in this case are telling us a clue

]]> by: hugo http://www.tradersnarrative.com/how-the-price-earnings-ratio-can-fool-you-2594.html#comment-54416 Tue, 25 Aug 2009 16:47:40 +0000 http://www.tradersnarrative.com/how-the-price-earnings-ratio-can-fool-you-2594.html#comment-54416 Well, Im with you about is more interesting the dividend yield, but also is strange that the dividend remains strengh while the earnings fall a lot. Don´t make sense to have losses and pay dividend. At least in my lineal way of thinking. Anyway, have you checked those spikes in the PE? All were tops in markets ready to fall. 1946,1961,1987,1991,1999 were all time record in the indexes (except 1946 cause was lower than 1929). Of those 1991,1999 basically was being traded flat or slightly above in the next 12 months. But 1946,1961,1987 spikes are precedents of sharp declines. Also you will find that those spikes in that chart represents the market in 1938 and 2002. These two cases were not all times records, but rallies after bear markets. And nowadays maybe this is the case. Just go to S&P, take the exactly data of the spikes and then go to the market in those times. Well, Im with you about is more interesting the dividend yield, but also is strange that the dividend remains strengh while the earnings fall a lot. Don´t make sense to have losses and pay dividend. At least in my lineal way of thinking.

Anyway, have you checked those spikes in the PE?

All were tops in markets ready to fall.

1946,1961,1987,1991,1999 were all time record in the indexes (except 1946 cause was lower than 1929).

Of those 1991,1999 basically was being traded flat or slightly above in the next 12 months. But 1946,1961,1987 spikes are precedents of sharp declines.

Also you will find that those spikes in that chart represents the market in 1938 and 2002. These two cases were not all times records, but rallies after bear markets. And nowadays maybe this is the case.

Just go to S&P, take the exactly data of the spikes and then go to the market in those times.

]]>