[Troy]

In the the National Post this past week I read that reported earnings will be greater than operating earnings in the S&P500 in 1Q03. If operating earnings are going to be up about 11% according to FIRST CALL to $12 and if reported earnings will be more than $12 is that not a 400% increase in earnings from $3 in 4Q02? I just can't believe it. By the way that $3 is worse than 1987 quarterly earnings.

My other question is if the S&P500 does not make it to 985 by Dec, 2003 then there will be a pension cost of $5.83 for not making the 9.5% return. However, I expect the S&P500 to easily be in the 600s sometime this year which is a pension cost of $18. If reported earnings end the year at $30 then that would put core earnings at $12 and at S&P500 at 650 that makes a PE ratio of 54 which is outrageous.

If this isn't cause for grave concern what is? Do you buy a business that takes 54 years to pay for itself?

Troy

[Troy]

I know why earnings are $3 from $9 last year because of the NAS 142 writedown accounting rule change where before AOLs writedowns were placed under reported earnings as extraordinary items and now their writedowns are included in reported earnings. Praise the Lord! So if such fantastic writedowns don't continue then that is how we see a pop from $3 in 4Q02 to $12 in reported earnings in 1Q03. But like I said I will believe it when I see it because weren't there also a tonne of writedowns in 1Q03 and won't there still be a lot coming this year?

[Yoshaviah]

CRAP vs. GAAP

[Troy]

Ya but doesnt that scare you if you interpolate and say reported earnings will be $11 each quarter for $44 which puts the PE ratio at only 911/$44=20x. Thats not bad right?

[Grand Poopercycle]

Except by the "standards" of the last 6-7 years, a 20 P/E has historically been considered damned high-i.e., a sell signal. 7-8 P/E's(and 5%+ dividend yields) have been signals of MAJOR market lows. Just a bit shy of those levels at present.

[Troy]

Lets be reasonable though, interest rates are low, this is not 19% 1982, this is 1.25% 2003.

Secondly I contacted S&P and they said the price to book on the S&P500 as of this very moment is 2.6.....gettting quite low from the 7.6 peak.

I know the VIX and VXN are really low but since everyone knows about them they should by definition then not work. Commercials are long for the first time. We may not be a in a runaway bull but maybe more the up and down japanese market of the 1990s. So we saw the bottom a triple bottom and S&P500 will never go below 800 ever again and maybe never below 850 or 900 ever again.

[Troy]

S&P500 book value is $360 right now which means the price to book is very reasonable at 2.5 or so way down from its high. This means the bubble bursting is done.

[Yoshaviah]

What would be a "reasonable" rate of return from a company that goes bankrupt? If enough companies in the S&P go belly up then the risk factor will manifest itself very quickly. Too bad some people can't make the connection between risk and high PEs.

[Troy]

I can't understand this

This is the price to book by the respected Ned Davis Research. Now that the S&P500 is over 900 the price to book is over 4x

http://www.comstockf...PP00000/030.pdf

Just like IVV funds is over 4x

http://www.ishares.c...html?symbol=IVV

But S&P emailed me and said it is not over 4x.

STANDARD & POOR'S QUANTITATIVE SERVICES
S&P 500 ANNUAL PER SHARE

YEAR PRICE BOOK
VALUE


PER SHARE
2002 879.82 332.21 (estimate) if S&P500 is at 920 the price to book is 920/332=2.77x
2001 1148.08 343.73
2000 1320.28 324.89
1999 1469.25 293.57
1998 1229.23 269.91
1997 970.43 251.03
1996 740.74 236.89
1995 615.93 215.80
1994 459.27 193.37
1993 466.45 184.04
1992 435.71 181.66

Barrons magazine agrees with IVV and Ned Davis http://www.sharelynx...mp/Mark/ABP.gif

I am short a truckload. Barring any derivatives, terrorist, pension, SARS, options, real estate, debt explosion the only thing that can make the market go down as best as I can tell is an earnings disappointment. The S&P500 website is showing REPORTED earnings expectations of analysts are:

1Q03 $11.40 (truly an amazing increase from the $3 we say in 4Q02)
2Q03 $10.00
3Q03 $9.50
4Q03 $7.20

Assuming that there will be some drop in earnings as usual though not by as much as usual lets say for the sake of argument the numbers will be $11, 8.50, 8, 6.50. This would put reported earnings in 2003 at $34 below the concensus estimate of $40.

If the market stays were it is and the core earnings are not hurt too badly by pensions and options, then the PE ratio will be 920/34=27. Is this a sustainable PE ratio or is 22 more reasonable? Or 18?

At 22 the S&P500 would be at 22x34=748
At 18 the S&P500 would be at 18x34= 612

I am short a truckload and expecting to cover my shorts at 650. What do you think? This could be the final bottom or it could be 450 who knows. All I know is this is the biggest stockmarket bubble in USA history and for it to end with the S&P500 having only been down 50% from 1532 to about 766 to me is hard to fathom. It came nowhere near 1929-32 and was no worse than 1974. You would think it would be at least worse than 1974 and since it is the biggest bubble in USA history it should be worse than 1929-32.

What do you think of this reasoning?

[Grand Poopercycle]

Again, stocks sell BELOW book value at major lows, and despite all the writeoffs of the past few years book value is likely still overstated(goodwill, etc). Yes, we could swing back n' forth in a big trading range from here like Japan did from '92-'00-but the (darling)NIKKI has now slalomed to new lows at about 1/2 the midpoint of said range; that's what'll happen here if we start said range now. Better we get one more good smackdown(at least) and start the range next year and have it run between SPX (~) 575-950 for years-until nobody gives a shit about stocks and the averages are at...P/E's of 7-9x, dividend yields of 5-7%,P/Book of 1 or less.
The biggest problem stocks face is that...DESPITE THE THREE YEAR ASSKICKING WE"VE HAD STOCKS IN AGGREGATE ARE STILL SERIOUSLY OVERVALUED, MORE OVERVALUED THAN IN 1929(and '66-'68) -based on DJI dividend yield(~2.4% now vs. ~2.85% in '29 and '68) and total equity market value to GDP(~95-96% now vs 81% in '29 and a bit less in '68). Don't even have to deal with bullshit earnings numbers , as with still massive P/E's, to point out overvaluation.
Bear markets are about returning true values to stocks(paraphrasing someone here-R. Russell?)- we ain't even close yet.

[Troy]

Thanks,

I had forgotten about the still high market capitalization to gdp and i know gdp is no taking off any time soon so that only leaves the markets to come down

[theUbend]

TROY, be aware that SP is using its proprietary "CORE EARNINGS" calculations. Still far from GAAP

[Troy]

What makes core higher than gaap?

[theUbend]

Coz its still contains alot of bollocks. The info is largely discretionary.