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The way I see it, justification (always tough to justify anything in the
markets) for higher stock prices comes from one of two things:
1. Higher Earnings
2. Valuation Expansion (how much the market is willing to pay for 1 cent of
earnings)
The markets have seen massive valuation expansion--remember when the chicken
littles said the sky was going to fall when the P/E ratio on the S&P first
passed 20? Earnings are growing at about 5% a year. Yet, the market is
rising at a rate much higher than that--and has been for a couple years
now. So, either the market is counting on significantly higher earnings or
further valuation expansion (greater fool theory). Barron's had an article
recently stating that earnings from overfunded pension plans are becoming a
bigger and bigger slice of a company's overall earnings. When viewed in
that light, the market and company's earnings have become a vicious circle.
The market is driven by liquidity. The Fed has had the liquidity spigot
open for a long while now. Consider that they cut rates 3 times last year
when GDP was over 3%!!!!! They are now slowly starting to take liquidity
out of the market.
Would love to hear someone else's take on the current fundamentals in the
stock market...
Bill Bancroft
Paula Petersen wrote:
> > Wealth is being made and spent from rising stock
> > prices instead of labor, materials and products. The end
> > result will be inflation.
> >
> Good evening: My background is in the manufacturing of hard goods so I
> would tend to agree with this statement from a mainstream Options
> advisory. I'd be interested in hearing anyone's opinion about how they
> view this in relation to the future equity price levels.
> Today on CNBC they spoke with a gentleman from Internap and discussed
> that their revenue was 17 million(I believe this is correct) versus
> their stock valuation of 1 billion dollars.The commentator asked the
> CEO what could be the justification for these overvaluations versus real
> revenue and the talk of" future "profits began. The CEO had no answer
> except that the stock buyers were betting on the come.
> Just thought for discussion. If I'm jamming the network with non topics
> let me know. Many user groups nowadays are hypersensitive to topics not
> within the list jurisdiction.
> Have a nice evening,
> Paula
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