View Full Version : S&P

01-29-2002, 03:17 PM
Will it break the lows set around the 920 level?

01-29-2002, 04:12 PM
I don't even understand the psychology driving this big push down today. If you read all the market sites it refers to a bunch of rather small events. Guess people were just on edge thinking about how much the market has gone up. There really are no major drivers to explain the movement, the economy continues to look up and it seems like if the Fed lowers a quarter tomorrow it could drive a nice rally the other way.

01-29-2002, 04:53 PM
Besides, whatever does give someone reason to sell today, it is very bland and general, and as such applying to all investors uniformly.


01-29-2002, 04:56 PM

01-29-2002, 09:44 PM
I agree the market should be higher.Now that KMART has filed for chapter 11 there is one less

company to miss earnings estimates!Here is what I don't get.Walk down any street and ask any business

owner the following question, "will you sell your

business for 25x earnings?" Typically the business

owner will salivate and offer to throw in his firstborn.Yet that same person will be long S&P

or some variation of S&P and think nothing of it.

Am I missing something? The S&P was overvalued prior to the recession and now that earnings are

going to be less it rallies up to 1178 and then fails to 1100 and everyone starts crying.I think its incredible that its not trading at 650.I am not saying it will go to 650 only that if it did it wouldn't surprise me.As stated in many of my earlier posts I will be looking for the appropriate rallies to sell.

01-29-2002, 10:05 PM
Come now, thats a ridiculous comparison. First of all most Main St. sellers have very little way to generate earnings growth. Second big companies such as in the S&P 500 have much more advantage in terms of getting to profits than a typical business owner does. There is a lot of concern about how they get to those profits, but that is beyond this discussion. Third the S&P 500 is just a weighted index and most of the companies with the biggest weights are high growth companies. You could discard the bottom 200, they have very little bearing on the index, the next 100 after that only have modest influence. The top 200 is where the index is made or broken and those include a lot of companies that could justify a 25X earnings price. Fourth the point we are at right now with the economic cycle would imply that the worst of the earnings should be at this exact moment. While nothing conclusive yet, the economy's numbers seem to show inflection points around Thanksgiving. After that unemployment has greatly slowed, manufacturing seems to be picking up, consumer confidence has rebounded...all signs that mean that corporate profits should start to rise in Q1 and go up from there. A 25X can quickly turn into a 21X with a rebound in the economy because productivity is still rather strong and consumer spending hasn't given in. Of course it lowers the likelihood that becomes a 10X because the recovery is unlikely to be 5% growth, but even a 2-3% growth rate with our high productivity and leaner companies that have used the recession to shrink their fixed costs should mean very positive earnings growth. If the economy grows 2%, for the next year 8-10% earnings growth should easily be realized due to all these factors. It will be about a year before companies start to hire much, so the earnings growth will be magnified.

All this being said, you might be right a bit about slightly overpriced stocks, but its nowhere near what you think. I would say a 22X right now would be fair, just because that would imply about a 16X in a year and a 12-13X in two years. Besides don't forget that bond prices and inflation are so low, people have little alternative than to be in the market. If all you can get is 2% on your money, that creates a lot of demand for stocks and I think that is a factor that a lot of market analysts are overlooking at this time as well. When interest rates move back up to where short-term funds get 5-6%, then you will see some pullback, but by then the market probably will have gone up.

01-29-2002, 11:23 PM
It is a lot easier for a seller on "main street"

to raise his price on envelopes 10% than it is for IBM to raise the price of their computers.

Sorry but I am a perennial bear.I think the market has already priced in the best scenario

it can hope for.The one you hear on CNBC all day andthe one you wrote about.But I ask what if things get worse..because you have already priced in better...or if they just go sideways.It just seems to me and Igo by gut only that everybody is singing or hoping to sing happy days are here again.Those free money days are over.Slightly

over priced?HistoricallyS&P trades at 15x earnings..true? What is different?All you can get

is a few percent on your money but i like to keep

my money and if you want to borrow money REAL

rates are high.

Consumer confidence has rebounded except if you were one of the million people fired this last

year or if you sat next to them.

01-30-2002, 02:36 PM
You distort the unemployment picture. The unemployment rate is not particularly high when viewed in a historical context. You really can't have it both ways and say that the unemployment picture is bleak but consummer confidence is good. Anyway the unemployment rate tends to be a lagging indicator of the economy and usually peaks when the recovery is underway. Now as far as valuations reflected by PE's, there are two basic reasons one is that interest rates are low especially short term govt bond rates (a dollar in earnings is valued higher) and that earnings are at least somewhat abnormally depressed. Could the economic picture significantly worsen? Of course it could. The consummer has held up fairly well and really the economic slowdown is mainly due to a virtual depression in capital spending.

As far as being long or short I think there is a buying opportunity coming. I posted on the day I bailed from my long positions saying that I would and I'll post when I buy back in. The market has had a decent rally from it's lows and is correcting IMO.