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Dear Alex,
I went to the site you hyperlinked and could not reference your PE
multiple. One must be careful in using PE multiples with the S&P 500
because of different weightings. It is not just an average of the PE
of ttm earnings. It should be weighted average as reported by James
Moltz.
A case in point:
Allegheny Energy PE 3.5
Alterra PE 178
There are some bargains on a PE basis in the S&P as well as some
sucker bets.
GE, which is the proxy for the S&P, carries a weight of about 2.3%.
Its current ttm PE is about 16 and its influence upon the PE moreso
than one with lesser weight.
I believe the weighted average as of the end of the year was 15 to
16. No one wrote into Barrons to refute this current number.
John
------------------ Reply Separator --------------------
Originally From: Alex Bell <alex_bell@xxxxxxx>
Subject: Re[2]: [RT] Commodities
Date: 01/13/2003 03:08am
Hello BobR,
current p/e ratio for S&P Comp. is about 22 and historically it may
drop below 10. see attached. source:
http://www.econ.yale.edu/~shiller/data.htm
Best regards,
Alex mailto:alex_bell@xxxxxxx
Monday, January 13, 2003, 2:19:53 AM, you wrote:
B> Let's assume the drop is halfway over for the spx cash, i.e. 600
points from 1500 to 900. That means another 600 points down to 300,
or maybe 450 on the conservative side if it only drops 50%
B> from current levels per Norman's PE calculations. Strangely
enough I have some software that is projecting 301.65 on the cash in
34 months after a high in 3 months. On the weekly it is 13 weeks
B> to a high and 38 weeks to a low. Just in the FWIW category since
it is all geometry bound to be distorted by politics and economics.
Code is protected so I can't answer how it does the
B> calculations. Note that there is no astrology involved in Norms
calcs this time, but its got me wondering what his astro calcs would
say about the timing and price projections on another 50% down
B> move.
B> bobr
B> ----- Original Message -----
B> From: Norman Winski
B> To: realtraders@xxxxxxxxxxxxxxx
B> Sent: Sunday, January 12, 2003 2:37 PM
B> Subject: Re: [RT] Commodities
B> JC,
B> Thanks for the recognition. However, I must differ with you
on your
B> evaluaton of the
B> current vs. historical US stock market PE ratio. Until the
previous mania
B> began in the 1980s, most major bull markets topped with the PE
between
B> 18-22. It is my understanding that the S&P 500 currently is at
a PE near
B> 30.Most major bear markets have ended with the PE in single
digits.
B> Obviously, for the US stock market to follow it previous 200
year pattern,
B> earnings would have to
B> dramatically improve by at least 100% or the market would have
to drop 50%
B> to consider this market
B> anywhere near its historical mean of fair value. I recommend
studying the
B> 1873 - 1896 period in US stock market and economic history for a
clue as to
B> what we may expect. This period was a 23 year period of a
gradual bear
B> market with many intervening boomlets. One of the hightlights
of this
B> period was the tremendous volatility and bankrupticies of the
rails. One
B> can probably translate the
B> rails of 1873 - 1896 to the current day internet,
telecommunications, and
B> perhaps the airline industries, which have all fell victim to
deflationary
B> factors within their industry, just as what happened to the
rails during the
B> 1873 - 1896 period.
B> Longer term, one should keep in mind it usually takes decades
for a bubble
B> to unravel. Gold topped in 1869 and bottomed in 1932.
Soybeans topped in
B> 1973 and may have bottomed in 1999. Gold topped again in 1980
and may have
B> bottomed in 2002. DJIA topped in 1929, bottomed in 1932 (the
exception due
B> to severe price crash) but didn't recover to 1929 prices for 25
years.
B> Regards,
B> Norman
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