Posted on 10/12/2008 6:08:56 PM PDT by prolifefirst
. . . when the stock market moves away from historical norms, it tends to overshoot. The modern low on the Graham P/E was 6.6 in July and August of 1982, and it has sunk below 10 for several long stretches since World War II -- most recently, from 1977 through 1984. It would take a bottom of about 600 on the S&P 500 to take the current Graham P/E down to 10. That's roughly a 30% drop from last week's levels; an equivalent drop would take the Dow below 6000.
Could the market really overshoot that far on the downside? "That's a serious possibility, because it's done it before," says Prof. Shiller. "It strikes me that it might go down a lot more" from current levels.
In order to trade at a Graham P/E as bad as the 1982 low, the S&P 500 would have to fall to roughly 400, more than a 50% slide from where it is today. A similar drop in the Dow would hit bottom somewhere around 4000.
Prof. Shiller is not actually predicting any such thing, of course. "We're dealing with fundamental and profound uncertainties," he says. "We can't quantify anything. I really don't want to make predictions, so this is nothing but an intuition." But Prof. Shiller is hardly a crank. In his book "Irrational Exuberance," published at the very crest of the Internet bubble in early 2000, he forecast the crash of Nasdaq. The second edition of the book, in 2005, insisted (at a time when few other pundits took such a view) that residential real estate was wildly overvalued. . . .
(Excerpt) Read more at online.wsj.com ...
This guy is saying that there are a lot of undervalued stocks out there, but it usually doesn’t matter because the market usually overshoots when it goes down.
Japan opened 11 minutes agos, so we’ll see.
There have got to be some incredible stock deals to be had right now, if only common sense would kick in over panic...
So wonderful how after the fact authors come out and say they predicted it. I guess if you predict a market correction every year, sooner or later you will be right.
I am buying. Buffet is buying. Smart people are buying.
I took a pile of money out of the market before the worst of this hit. Now I’m thinking of putting a little back in on Tuesday. Between now and then I’m shopping for good stock pix.
This from a guy whose career is studying these things and is batting 1000. None of us knows anything.
Jeremy Grantham, who is a better money manager than Schiller, said things do not look great but we have already overshot on the S&P 500. He says fair value is 12% above where we closed on Friday.
Schiller is a prof, writer and not really a money manager. We are also close to a 50% Fibonacci retracement. This essentially means you retrace 50% down from your highs before you bottom. We are about there.
Read the article, he predicted it in 2005 in a book. He's been 2 for 2 in the last 8 years predicting crashes.
I’m working closly with a very reputable investment firm for my company’s capitalization.....
The principle of that firm told me 2 months ago that the market would go to 8000.... before Halloween....
He stands by the 8000 as the low.....
I’m in cash at the moment. I will get back in but not until it stabilizes. While it’s swinging 500 points or more in a day, you might as well be in Vegas...
The professor agrees that there is a lot of value out there, he is just saying that his intuition is that the market still has a lot more down to go.
So share what you are buying, perhaps? I am interesting in buying and have been considering it...
But Prof. Shiller is hardly a crank. In his book "Irrational Exuberance," published at the very crest of the Internet bubble in early 2000, he forecast the crash of Nasdaq. The second edition of the book, in 2005, insisted (at a time when few other pundits took such a view) that residential real estate was wildly overvalued. . . .
That’s good work by the author, but the DOW shouldn’t go any lower than around 7000 or so, IMO.
GM and AIG??... You got more guts that I got.
Myself??...I’m leaning toward some blue chip corp. bonds that are yielding 9%
Of course it could. In the 1929-1932 slide, the DJIA dropped by about 90%.
OTOH, at its low, the dividend yield was about 10%. If you were so fortunate as to be able to reinvest dividends or to dollar cost average during the slide, you would have been cushioned from some of the loss, and done quite well over the ensuing years.
You're betting on Chrysler buying them, I see.
This is anecdotal, so take it for what it’s worth. And personally, my wife and I have taken about a 40% hit in our retirement fund this year. But things may not be as bad out in flyover country as the Obamas would like you to think.
Spent the weekend in Ocean City, MD. The Hotrods and Streetrods were in town; approx. 1,000 of them. Roaring up and down the streets ‘til the wee hours, burning untold gallons of high-priced, high-octane fuel.
Then on the way home, rolling up MD Rt. 50, here go the Rodders heading home, with their TOYS on flatbed trailers and pulling them with big pick-up trucks, burning MORE high priced gasoline.
Then we cross the Chesapeake Bay Bridge, and there are the boaters out on the water, leaving pretty white wakes as they plow across the bay, burning more expensive gasoline or diesel fuel.
All of which makes me wonder just how tough the majority of Americans really have it.
It won't take too many $$$ to become a major shareholder in those companies. He may get to party with the execs!
Maryland is currently considered the richest state in the Union. I don’t think what you saw was typical.
A lot of local people have guaranteed government jobs and they feel confident about the future, so they don’t have a problem spending on gasoline. The rest of America is not so secure.
I'm betting on the Feds in the short term.
3 years ago I bought 3/4 million dollars in Iraq Dinars.
I don't think the Feds let Iraq fail.
I don't think the Feds let GM die.
and after loaning ‘em 122 billion, I don't think the Feds let AIG die either.
I posted this on another thread but I guess it applies here also. Being an Elliott Wave enthusiast I have concluded that we are right about where we should be, granted we have arrived much sooner that anyone has anticipated. “Elliott Wave Principal” follows the theory that the market is traded in repetitive cycles, revolving around the emotions of investors as a cause of outside influences. That being said we are in a very emotional wave 3 which dictates massive selloffs, followed by a temporary bottom (at present) to be followed by a 25-50 retracement back up to 9500-11000 area thus forming the completion of a wave 4 up which is a profit taking wave of emotion for the short sellers. The final wave 5 down is the wave of emotion where all the short buyers that are convinced they missed the wave 3 down, get in short for the final ride down to at least 62% from the peak of wave 4 (9500-11000), to a low of at least 7000 before a genuine return to the upside can be expected.
The professor might have noted that any P/E under 10 is not only ancient territory, but entirely alien to an age of modern velocities. Would you really bet that the market can’t cover its cost in ten years?
Is there no growth? If not, then toss the future, and buy at par value. But, if so, then buy, buy buy, cuz it’ll pay itself many times over as companies grow out of this mess.
No one knows the bottom. The better question is where is there value?
At some point greed will overpower fear and the market will turn. There are clear bargains to be had.
If the government would get rid of the double-taxation of dividends, then companies could pay out much more of their profits in dividends; if investors want to re-invest, companies could then sell stock to fund expansion. If such behavior were the norm--if stocks were expected to reward investors by paying dividends rather than increasing per-share value, then the proper market behavior in the stock market (buy less when prices go up) might return.
What are its liabilities? Does it have 27.8 billion in cash free and clear, or does it have 27.8 billion in cash and 25 billion in debts?
Pretty scary that the S&P could actually fall below 500 pts. I definitely sleep well, being in all cash since 2006. It is a relief to know I saved myself a 40% loss to date.
I’m shocked that so many are still “catching knives” and seeing buying opportunities. I feel very confident that the S&P falls to 770 and a fall to low 600’s range is now very possible. I can’t imagine anybody buying equities right now in this accelerating deleveraging.
There will be no V-bottom, that is for certain. Maybe a U-bottom. Most likely a long L-bottom. There is absolutely NO hurry for investors to rush back into equities.
It is not to late to cash out, sit on the sidelines, and wait for the markets to move closer to the bottom. Normally, you can’t time a bottom and you can’t time the ultimate bottom in this crisis. But you can be smart and savvy and look where the markets are going in this massive, continuing deleveraging.
Anybody buying equities today is a gambler. Good luck with your bets, but Donald Trump’s Casinos might give better odds this year.
You're talking about MD, DC, and Chesapeake Bay area. Government employees and companies that survive off of government contracts are largely unaffected by economic realities.
Since they don't ring a bell when the markets hit bottom (or the top) this makes a good case for slowly feeding money back into equities starting about now. By slowly I mean 10% monthly, or even better 2.5% weekly) of the target amount you would assign to them within your portfolio. The market may indeed sink further but by feeding a little in at a time allows you to minimally expose yourself to wild sell offs. I personally am about 70% there mentally to beginning to reshuffle my portfolio which is now almost 100% in cash and government obligations.
Looks as if he was dead on. The market bottomed, intra day, at something around 7700 last week.
Bonds seem a really good bet these days. Traditionally bonds do well in an atmosphere of lowering of rates and that seems assured for now. Probably be 18 months or so before we hear any talk at all of a rate hike and we surely will hear or see further reductions of rates both here and over seas.
9% blue chip bonds? By blue chip do you mean triple A? Can you give me a couple of names or a link?
Thanks
I agree
I recall hearing once "If you owe the bank one million dollars the bank owns you. But if you owe the bank one BILLION dollars, you own the bank"
I heard this about 40 years ago so adjust the numbers to reflect inflation.
I agree
I recall hearing once "If you owe the bank one million dollars the bank owns you. But if you owe the bank one BILLION dollars, you own the bank"
I heard this about 40 years ago so adjust the numbers to reflect inflation.
“Read the article, he predicted it in 2005 in a book. He’s been 2 for 2 in the last 8 years predicting crashes.”
Give me a break. Did you READ the book? It says nothing like that other than vagueness. I could do the same thing.
The Europeons are shelling out money like crazy. 1.5 Trillion.
The World Banks have won an incredible payday, and now they will shoot the market up and make all kinds of cash and then still not pay anything back.
What a great scam they have pulled off.
Robert Schiller has been warning about a substantial housing correction ever since I started following the real estate bubble back in 2005. I don’t know about his predictions about the dot-com bubble, but he’s been dead-on about the real estate bubble.
Granted, he wasn’t alone - a lot of people saw that housing gains were headed for a catastrophe back then, but they were routinely labeled as Debbie Downers and promptly ignored. Nobody likes a Jeremiah or a Cassandra ...
Research Fixed Income Individual Bonds Search Results
Bond Details Help/Glossary Print
Offering GENERAL ELEC CAP CORP MTN BE 5.62500% 05/01/2018
SR NT ISIN #US36962G3U65
CUSIP 36962G3U6
ISIN US36962G3U65
SEDOL --
Pay Frequency SEMI-ANNUALLY
Coupon 5.625
effective yield today..8.285%
Maturity Date 05/01/2018
Moody's Rating AAA
S&P Rating AAA
Issuer Events YES
Call Protection YES
Sinking Fund Protection YES
Put Option NO
Bond Type Corporate
Sector FINANCE (NON-BANK)
Interest Accrual Date 04/21/2008
Expand All Collapse All
Looks like a good call on GM. What was your entry price?
Thanks.
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