The typical PE of the SP500 during severe recessions is between 7 and 10. This year, estimates are for the SP500 as a whole to earn $42 (which I think is optimistic).
So, if history is any guide, the SP500 which is now about 700 or so, should fall to between about 300 and 400.
The only stock worth buying now is probably GE, which has fallen some 80%, btw. It has already collapsed and won’t fall much further, if any.
[quote]Bill Roberts wrote:
It’s not just businesses changing their plans due to Obama’s taxes, or investors realizing that dividends will be less.
I don’t know the prevalence of this but from immediate friends and acquaintances, my best friend decided back in the Spring, as soon as it seemed Obama would likely win the Presidency and had announced his soak-the-“rich” taxation policy,
That if Obama were elected he would cut his income to under $250K per year rather than be taxed so heavily. He is an ER physician and can readily change his hours.
He promptly cut spending in advance to be ready for the income change. Stopped paying for a personal trainer, cancelled vacations, stopped eating out as much and lowered the per-visit cost, decided to hang onto the same vehicles for a while longer (they’re only a few years old) rather than buy new ones as he otherwise would have done, etc.
He stated that some other doctors he worked with were planning the same, to get under the punished tax-bracket. I don’t know if they also trimmed their spending in advance.
All this is predictable, too. Unless one attributes extreme stupidity or ignorance to the Obama team, they would have had to have known in advance that taxation increases would reduce GDP compared to no increase, let alone to a cut.
Reducing GDP is never good, but creating additional reduction in a recession is just either destructive – “never waste a good crisis, it lets you accomplish things you otherwise couldn’t have” (paraphrase) – or incredibly stupid.
On the other hand the man is lost without a TelePrompTer for, we learn, even the tiniest of public speaking.
( Obama's safety net: the TelePrompter - POLITICO )
[/quote]
Puppets never go anywhere without their teleprompters.
[quote]dhickey wrote:
I do. hope that it will fall even further, at which time I will dump a bunch of money into it.[/quote]
Exactly! Isn’t a bear market exactly what an overextended economy needs to recover or am I missing something?
[quote]hedo wrote:
Stocks and other tangible investments will not rebound until he is out of office.
[/quote]
I am more hopeful than that. I think once all the bad debt is exposed and investors can see what sort of assets everyone else is sitting on there will be a rebound as prices stabilize.
The key is that all the “stimulus spending” needs to stop, otherwise the only “rebound” you will see is price inflation. Frankly, I’d rather have cheap productive assets (i.e, that create an income) rather than expensive unproductive assets (that consume income) – which is what government spending will ultimately cause.
For the severely uninvested, debt free individual this is a great time to be alive. There will be decent, cheap productive assets to buy once all the credit finally seizes up.
[quote]Bill Roberts wrote:
So exactly why there is so little discussion in most places about how Obama’s tax plans COULD HAVE BEEN PREDICTED to yield a very large drop in stock prices (and therefore quite reasonably the slide starting as soon as it started seeming risky and then probable that he would be President resulted from such prediction) and so long as such tax rates are in effect should keep stock prices at the devalued level,
is hard to see.
Is it that most people in most places – other than investors re-evaluating what should be paid for a stock or at what point they should sell – don’t understand this fact?
[/quote]
Beyond the general idea that if a company does better its stock will tend to do better and vice versa: most people have no clue what factors influence stock prices, any more than they have any clue what factors influence solar flares.
A number of credible and probably correct people have said that even absent the Obama/Reid/Pelosi fiscal and regulatory policies, the market was over-priced. Many and possibly most people will not understand that however much the market had to go down, policies that severely cut anticipated after-tax dividends will make the market go down even further than it otherwise would have.
People do not want to believe that the US government cannot do everything they want it to do without wrecking the economy.
Is it getting easier to see?
[quote]LIFTICVSMAXIMVS wrote:
hedo wrote:
Stocks and other tangible investments will not rebound until he is out of office.
I am more hopeful than that. I think once all the bad debt is exposed and investors can see what sort of assets everyone else is sitting on there will be a rebound as prices stabilize.
The key is that all the “stimulus spending” needs to stop, otherwise the only “rebound” you will see is price inflation. Frankly, I’d rather have cheap productive assets (i.e, that create an income) rather than expensive unproductive assets (that consume income) – which is what government spending will ultimately cause.
For the severely uninvested, debt free individual this is a great time to be alive. There will be decent, cheap productive assets to buy once all the credit finally seizes up.
[/quote]
I agree with this unless he keeps spending. I doubt our credit will sustain 4 years of this kind of spending, so the markets should be able to stabilize. The other risk is sweeping regulation, carbon credits, change in tax rates, etc. This will have the market chasing its tail like it is now.
The key is for gov’t spending, regulation, taxes, interest rates, and currency value to stabilize. High or low it doesn’t matter as long as speculators (consumers, investors) can reasonably interpret market signals.
I would rather he do all his damage quickly so we can start to recover. The point at which we start the recovery is up to him. As soon as he stops meddling we can begin. Tick tock.