4 replies to this topic

[humble1]

these two pillars of the bull case rarely go challenged because they have been repeated and undisputed for SO LONG that any naysayers are marginalized. now, check out these two articles, if you don't want to close your eyes and ears to reality and pay the price:

* stocks are at about 27 times earnings, near the HIGHEST in history. this is the valuation method long used at Harvard Business School to train security analysts. keep in mind that when the pedulum has swung the other way, valuations have touched near FIVE times earnings. two cases were as recent as 1974 and 1982. check this out:

http://economistsvie...-leonhardt.html


* corporate balance sheets are in great shape. read this factual perspective. this was written in the financial times, not exactly a whacko source.:

http://safehaven.com...cle.cfm?id=8316

Edited by humble1, 07 September 2007 - 09:39 AM.

[mike123]

Even if they are true it does not make case for higher stock prices. Because we are at the peak of the business cycle. Now you are saying they are not true. This makes it even worse.

[humble1]

123: right you are. also, supporting your case, is that corporate margins are also at very stretched levels historically. that pendulum ALSO swings.

[OEXCHAOS]

Well, I've lost a lot of money in my early career using S&P's as a reason to be Bearish. I might also add that I've not seen any data showing the usefulness/profitability of using multiple years of PAST P/E's. Do you havething to offer on that front. Strikes me as putting the cart before the horse--stocks discount the future. Those earnings are history. In any case, Anil Madan once brought up the point that P/E's by themselves are meaningless. The key contexts are the growth rates in those earnings, the real value of those earnings, and the competition. Right now, the competition is???? Inflation is dead and getting deader. So, if growth holds up, the thesis gets it in the keister. Here's a chart of P/E's. We're cheaper than we were at the 2003 lows.

[humble1]

the evidence i have to offer is in the referenced text book, "security analysis", which was used by the major business schools and is the basis for the linked article. as to using p/e alone for swing trading or position trading, i agree and did not so imply. only as a broad context, do i find it useful. HOWEVER, many on the bullish side are using p/e NOW as a pillar of their argument. so, i think the rebuttal was in order. regards and thanks for the good site ! h1