Thanks Wayne! So with earnings of $7.81 and a current price of 920 (S&P 500), the P/E Ratio for the S&P 500 is 117.797.

It would take us 117 years and 9 months to receive our original investment back in earnings. The stock market is overvalued by measuring the P/E. Talk about bubbles!

The banks and insurance companies should invest the $14.8 Trillion given to them by Paulson, Bernanke and Geithner in the United States. Let’s see:

February 2007 to February 2009: U.S. Recession

March 2009 to December 2009: Depression

January 2010 to December 2012: U.S. Hyper Inflation

January 2013 to January 2032: Great Depression II

England mentioned two months ago that their recession (Depression) would end in 2032. Sounds about right for the United States as well.

Also, the NBER has it all wrong on the our current recession beginning in December 2007. The U.S. Recession began in February 2007. Case-Schiller Index proves it.

I have good quarterly numbers going back through 1988 taken from Standard and Poor’s online site, but I had to approximate the quarterly numbers from 1988 to 1968 by backing them out one quarter at a time from the rolling 4 quarter numbers given in Shiller’s data. So, I think they are ok, but can not say with 100% confidence.

Backing out process was as follows

From S&P data I had back through 1988
1988 first quarter = A
1988 Second quarter = B
1988 Third quarter = C
1988 4th quarter = D

Then from Shillers data I had
12 months earning for four quarters from 1988 3rd quarter through 1987 3rd quarter was X

Then the 4th quarter of 1987 would be

4th quarter earnings = X - (A B C)

And I simply continued this process, or what I call rolling into each quarter, one quarter at a time.

So I really am simply looking for quarterly database to validate the one I approximated. Not sure what I would converse with Shiller on since his studies are done on rolling 12 month data. The only thing I could think to ask Shiller is why he doesn’t use quarterly data instead of 12 month data? Thx for the suggestion and I’ll give it some thought

I believe Shiller is the normalization dude , but again why use trailing 12 months data to try to get to monthly numbers, when you could use the actual quarterly numbers to get you an additional degree of accuracy.

I actually was able to approximate a quarterly database going back to 68. I took the quarterly data going back to 88 from S&P listed on the internet and then backed into each quarter one quarter at a time using the annual numbers from Shilling. This gives me an estimate that I would like to eventually check against the real numbers.

My next step is to probably try to get in touch with S&P and see if I can obtain the quarterly data somehow.

One thing I did notice, was that the negative earnings in 4th quarter of 08 was the only negative quarter going back to 1968.

If anyone cares to peruse, below is what I came up with

DATE EARNINGS
6803 1.53
6806 1.31
6809 1.32
6812 1.60
6903 1.59
6906 1.33
6909 1.37
6912 1.49
7003 1.44
7006 1.22
7009 1.21
7012 1.26
7103 1.53
7106 1.32
7109 1.32
7112 1.53
7203 1.64
7206 1.48
7209 1.49
7212 1.81
7303 1.97
7306 1.96
7309 1.95
7312 2.28
7403 2.17
7406 2.34
7409 2.32
7412 2.06
7503 1.73
7506 1.85
7509 2.12
7512 2.26
7603 2.43
7606 2.44
7609 2.42
7612 2.62
7703 2.60
7706 2.78
7709 2.71
7712 2.80
7803 2.63
7806 3.09
7809 3.05
7812 3.56
7903 3.60
7906 3.77
7909 3.70
7912 3.79
8003 3.94
8006 3.51
8009 3.40
8012 3.97
8103 3.70
8106 3.94
8109 3.66
8112 4.06
8203 3.15
8206 3.30
8209 3.05
8212 3.14
8303 2.93
8306 3.47
8309 3.76
8312 3.87
8403 4.16
8406 4.41
8409 4.12
8412 3.95
8503 3.91
8506 3.63
8509 3.74
8512 3.33
8603 3.82
8606 3.82
8609 3.88
8612 2.96
8703 4.44
8706 3.14
8709 5.32
8712 4.60
8803 5.53
8806 6.22
8809 6.38
8812 5.62
8903 6.74
8906 6.48
8909 4.85
8912 4.80
9003 5.54
9006 6.07
9009 5.33
9012 4.40
9103 5.14
9106 4.54
9109 3.74
9112 2.55
9203 5.36
9206 5.40
9209 4.73
9212 3.60
9303 6.11
9306 4.89
9309 5.81
9312 5.08
9403 6.93
9406 7.38
9409 7.94
9412 8.35
9503 8.88
9506 9.26
9509 8.69
9512 7.13
9603 8.96
9606 7.13
9609 8.96
9612 10.13
9703 9.78
9706 9.86
9709 10.47
9712 10.44
9803 10.29
9806 9.87
9809 8.99
9812 8.56
9903 10.96
9906 12.51
9909 11.93
9912 12.77
0003 13.74
0006 13.48
0009 13.71
0012 9.07
0103 9.18
0106 4.83
0109 5.23
0112 5.45
0203 9.19
0206 6.87
0209 8.53
0212 3.00
0303 11.92
0306 11.10
0309 12.56
0312 13.16
0403 15.18
0406 15.25
0409 14.18
0412 13.94
0503 16.95
0506 18.29
0509 17.39
0512 17.30
0603 19.69
0606 20.11
0609 21.47
0612 20.24
0703 21.33
0706 21.88
0709 15.15
0712 7.82
0803 15.54
0806 12.86
0809 9.73
0812 -23.25
0903 7.81

I haven’t looked at this in a while - other things have come up - but as I recall, you can test Shiller’s interpolated monthly values to see how they match up against S&P’s quarterlies for the periods when both are available. And again, if I remember correctly, they do match up reasonably well. So you can go back and create a quarterly series based on Shiller’s data which is what I had done.

Isn’t it Siegel that always tries to use the “normalized” PE? I kind of toss that into the same basket as the “Fed model” for equity valuation, although I suppose both have their adherents and as we all know, if enough people believe something it can become “true”. Someone far smarter than me has dismantled the Fed model (though the name escapes me) and I know that Siegel has his acolytes.

Your last paragraph rings true for me. But during the equity price destruction that occurred I had repeatedly written that multiples do not have to hit single-digits and if the last recession was any guide, never would before pps recovery. Bottom line, there is no “correct” multiple - it is whatever the market feels like it should be. Subjective truthiness or something like that. Perhaps someone that knows logic can provide the correct term.

For an example of the problem with working with trailing 4 quarters data, the 4 quarter PE is going to look sad until you drop this -25, that we had in the 4th quarter of 08 off at the end of 09. Then the PE based on trailing 4 quarters is going to all of sudden go from 100 to 25. Shiller and others try to deal with this by calculating a PE based on some normalization of 10 year earnings, with the idea that every thing reverts back to the mean. I am of the opinion that this time, the economic process may have shifted and I don’t really want to try to predict the value of the market using earnings data from 5 years ago

I am of the opinion, that all of us numbers guys who massage past numbers to try to extrapolate into the future are probably behind the curve. The guys with the advantage are the ones who can look at the fundamental changes in the economy and use insight to estimate what future earnings are going to be based on knowledge of the process.

Unfortunately, I fall into the category of one of those number guys who can only work with past data but feels like working with quarterly earnings data is the better approach. Standard & Poors has the quarterly numbers listed back to 1988 on their site. If anyone knows where I can get quarterly beyond that, I would like to get my hands on it.

Thx for sharing

TBill Expected PE
0% 45.5
5% 28.1
10% 10.8

my study was constrained by the fact that I only had data going back to 1970, I used 12 month trailing earnings for E.

But using this estimate, we could assume a fair value PE for the market to be 43-45 with Tbills yielding near zero. Problem is that last 4 quarters, earnings have been all over the map. Many argue that the 4th quarter negative earnings were an anomaly. If you took the first quarter earnings of 7.81 and assumed that was a good guess for next 4 quarters. The current PE would be more like 28, much more reasonble. The deal here is who has the best instincts of what earnings are going to be in 09? estimates are everywhere.