Nice work from Alan in this weekend’s Barrons. Fairly well tempered for Alan as well, which I think helps to propel his point, and bearish agenda. Included are two quotes that I could see becoming quite precient decidely soon.
DAVE ROSENBERG IS AMONG the vanishing breed of die-hards (we confess, in case you haven’t guessed, to being another) who still cling to the notion that stocks’ explosive rise since March is perhaps the mother of all bear-market rallies, but nonetheless still a bear-market rally. The essence of his skepticism — which we happily second — is simply that the economy, contrary to Wall Street’s jubilant insistence, has yet to turn the corner.
He wonders, moreover, whether the March 6 lows in the stock market were the real McCoy. Although, in contrast to us, Dave persists in keeping an open mind, he’s doubtful that they were. On March 6, he recounts, the market was trading at two times book, with a 13 times multiple on forward earnings and a P/E of 18 on trailing earnings, and a 3% dividend yield. Pretty rich valuations by all three measures of earnings, but pretty skimpy on yield, to rate as a true market low.
And today, after a 45% rise, the metrics, to dip into the Street cliché, are positively mind-boggling. The dividend yield on the S&P 500, Dave notes, is a meager 2¾%, and payouts so far this year have lagged some 32% behind last year’s not-exactly-torrid pace.
In a like astounding vein, he observes, the trailing P/E on operating earnings (adjusted, he explains, “to take out everything that is bad”) is now at 24 times, while — and if you have a queasy stomach you can skip this number — on trailing reported earnings, the multiple is a mere 760-plus!
“Something tells us,” Dave sighs, “that the marginal buyer of equities today at that price may well be the same person who was loading up on real estate during the summer of ’06.”
And a nice reminder of how we often misinterperate importate economic data is this gem below which comments on the recent decline in continuing claims.
As Bill King notes in the King Report, the “exhaustion rate” — that is, the percentage of the involuntarily idle who have used up their unemployment benefits — is now 49.8%. Which explains the decline in continuing claims that, in turn, has been a recent spur to stock prices. Reason enough to keep the bankers off the jobless line and let them have their million bucks.
The “real” bears are still weighing in, odds are they are more right than wrong after a 45% rally.
The Great Beer Bash
Alan Ableson, Barrons, August 3, 2009