Wednesday, December 3, 2008

Stock market is extremely expensive right now.

The S&P 500 is at an almost unbelievably high valuation -- trading for 18 times earnings. That's past earnings. As in, the past 14 months, minus the last two. Earnings are declining rapidly, and in a terrible recession you will see the market fall to 10 times earnings or below. In the seventies we hit a little under 7 times earnings. The market still has a long, long way to fall from here. The terrible economic news has been unrelenting, and the only thing that has prevented a 35% drop over the last two weeks was that the President-Elect kept announcing his economic team.

The world just does not get it. There is no way to say that without sounding like a pretentious prick, but look, analyst are still project S&P 500 earnings of almost $90 next year. Since earnings have almost already hit my $60 projection, somehow companies will go headlong into the worst recession we've ever had, save one, and manage to increase earnings 50% from here? I'll take that short.

1 comment:

Konrad said...

Good to hear strong conviction and prognosis is still downwards.