Bottom!?

The Value Trap

“How low can the stock market go? It has fallen
so much, right.” I am tired of hearing how it
has gone down SO much and how it is SO CHEAP.
People are talking about single digit multiples.

What truly is the multiple on S&P?

Our friends at Standards and Poors that compile
the statistics tell us that 4Q 20008 yielded the
following numbers (with 93% reporting):

Operating Earnings: 5.00 dollars per S&P share
(Yes that is FIVE DOLLARS). At this rate, S&P makes
20 dollars in the year. What is the PE of S&P500
with Earnings = 20?

At the current 750 on the index, P/E ratio is
37.5. You read that right! No Typo. P/E is 37.5

And operating earnings are what we get after making
up numbers with all the accounting tricks.

Now, Actual Earnings: $-11.97.

Yes. This is correct as well. Open your eyes people!!

S&P500 is LOSING money as an aggregate and this has
not happened post 1950. I do not have the data before
then. And PLEASE do not think this is some outlandish
numerical aberration.

The Nikkei 225 earnings were negative for multiple
(read >10) quarters in the 90s. We are in the same
situation. According to actual earnings, the PE
is INFINITE!!

Related to this hope, is also a prevalent belief that
we are going to get ONE FINAL CATHARTIC PLUNGE to
put in a bottom. These people are

a) looking at historical patterns that do not
hold OR

b) still thinking this is a problem of liquidity.

THIS IS A PROBLEM OF SOLVENCY. And the company that
is on the brink of insolvency (witness the negative
earnings of S&P500) is AMERICA INC.,

Now, if I hear once more about how cheap the
market is…...

- vo