Posted on 03/02/2009 8:02:27 PM PST by TigerLikesRooster
How Low Can The Market Go?
Henry Blodget | Mar. 2, 2009
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There were four massive stock bubbles in the 20th Century: 1901, 1929, 1966, and 2000. During each of these bubble peaks, the S&P 500 neared or exceeded 25X on professor Robert Shiller's cyclically adjusted P/E ratio.* After the first three of these peaks, the S&P 500 PE did not bottom until it hit 5X-8X. We're still in the middle of the last one.
The most recent bubble peak, 2000, was by far the most extreme we have ever experienced. In 2000, the S&P 500 by prof. Shiller's measure exceeded 40X (it had never before exceeded 30X). With the S&P 500 hitting 700 today, the PE has now fallen back to 12X. (See chart above.)
Three major bubbles are not enough historical precedent to confidently conclude where the S&P 500 will bottom this time around, but it seems reasonable to conclude that the trough will be in line with--or below--the preceeding lows
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So where are we now?
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Using Professor Shiller's latest earnings data, here's where the numbers would fall out if the market just kept dropping and 10-year average earnings didn't grow from today's level:
P/E S&P 500 Level 10X 575 8X 460 (highest previous trough low) 7X 400 (average previous trough low) 6X 350 5X 300 (lowest previous trough low)
In short, if the S&P fell straight to the high-end of its previous trough range (8X PE, or 460), it would fall another 35% from today's level (700)
If the S&P fell straight to the low-end of its previous trough range (5X PE, or 300), it would fall another 55+% from today's level.
Here's hoping we don't set a new low on the downside.
(Excerpt) Read more at businessinsider.com ...
For all the fear out there, NOBODY I know thinks we can possibly go to 300 on the S&P 500. Everybody I know feels like the worst must be behind us. I think complacency has set in as people think it is too late to sell and the major damage is done. They have no clue how low we can go or that this outcome is not just possible but is likely.
Most people are going to be flat stunned after the next major leg down. They won’t be capable of believing it.
Well let’s see on the Yahoo Finance Dow chart there is a pre-depression high of 343 in July of 1929. Then in April of 1932 there is a low of 43. So, that is about 12.5% of the pre-depression peak of the Dow index.
The high of ~14,000 in July of 2007 would have to drop down to something like 1750 before April of 2010, to reach the same percentage decline over the same period of time. That means we would have to lose some 5000 points off the current level per today’s close.
Is that level of decline possible/plausible? Well, if major banks such as BAC and C go down, and the major banks are nationalized as the Obama crowd wants to do, and auto industry files for bankruptcy as they should do, and if AIG goes down, and if carbon tax is enacted, and if gasoline taxes go up significantly, etc etc, it is not too hard to imagine such a drop in equity valuations to the 1700 neighborhood by around a year from now.
A few more days like today I'd say March 15th.
On June 13, 2011, the Dow Jones Industrial Average will bottom around 400. That’s 400, folks, not 4000.
Folks don’t forget that neither the P nor the E of the P/E ratio are constants. If the price drops by 20% by the next time they announce earnings, and then the earnings are also off by 20%, the P/E ratio stays the same but you’re not any closer to any theoretical bottom or norm.
Maybe they didn't want it to work..Obama Destroying the USA to rebuild it in his own image?
CLIP ..."In September 2007, Fannie Mae began (the truly intelligent said inevitable) its two month downward spiral that would culminate in its November crash. Then, in September (September again - weird) 2008 a strange one to two hour electronic run on US banks to the tune of $550 billion was affected before authorities were able to put a stop to it. One Democrat - Rep. Paul Kanjorski of Pennsylvania said that if authorities had not closed the banks, $5 ½ TRILLION would have been withdrawn from US banks, which would have caused the collapse of the US and within 24 hours the collapse of the world’s economic system. There are certainly those within our own government who know who and what were the perpetrators. But, no one is talking. "
So desperate became the quest for Democratic control by Pelosi, Reid, Frank, etc; that their conspiratorial actions became a "runaway freight train".
A few more days like today and the panic phase starts - that's when the real drop starts.
I think there will be a brief upturn due to stimulus package, which MSM will tout as a miracle. Followed by another string of huge sell-offs, all the way down to bottom.
How quickly can ObamaCarter destroy the economy?
Agreed, the panic-selling phase hasn’t really even started yet, but is about to.
Government currency printing presses are working overtime to devaluing the U$D even further, while at the same time the tax-funded unsupervised bailout billions continue being handed over to the same banker crooks, who in turn make sure their good friends in government are well taken care off.
The banking insiders relish the highly profitable monetary revolving door, since they are the ones really orchestrating insider trading like never before. They know all the tricks of the maerket
DOW 3000 by Fall '09...
The era in which we’re living will not be remembered by historians as a recession or a depression. It will be called “the Disintegration”.
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