Why is no one talking about the S&P500 P/E ratio?

[kashirin]

Quote from Daal:

Operating earnings is not balooney at all. Yes its earnings before bad stuff, but guess what, bad stuff usually declines once a recession is over, so it DOES provide a good view of what is likely as the SP500 normalized earnings will be

Same thing with the core CPI, the CPI hyperinflationists were all crying about the need for hikes in 2008, yet Bernanke and the FOMC(a bunch of people usually clueless about forecasting) owned them by fading the energy and commodity move saying the core CPI was more important. Jim Rogers, I suppose, is still supporting his idea of raising rates in 2007 to defend the dollar

Actually if Fed not lowered rates we would not have burst in oil prices which might ease or even prevent recession and financial collapse

the same true is now - zero rate will eventually (within 1-2 years) will bring new wave of commodity inflation which will depress economy again

 

[TGregg]

http://www.tradersnarrative.com/sp-500-price-earnings-ratio-long-term-chart-2330.html

 

[Daal]

Quote from kashirin:

Actually if Fed not lowered rates we would not have burst in oil prices which might ease or even prevent recession and financial collapse

lol. So if the fed had not lowered rates then the GLOBAL real estate and credit bubble would have a perfect soft landing, GDP would've been flat and no one would lose a job? You cant make this stuff up

 

[covered_call]

Equity prices, in particular equity futures, are forward look looking. What's the point of buying a company for what they made last year? You don't own the company yet so you don't participate in the profits. If I'm going to buy a company, I want to know what the earning potential is. What can I earn as an owner. What the previous owner earned is a barometer, but does not necessarily correlate with future returns.

 

[makloda]

Quote from Daal:

lol. So if the fed had not lowered rates then the GLOBAL real estate and credit bubble would have a perfect soft landing, GDP would've been flat and no one would lose a job? You cant make this stuff up

And likewise, the ONLY country that will suffer hyperinflation is the USA all by themselves!!! Ireland, Japan, Spain, Portugal, Greece, Latvia, Romania, India, Iceland will all be just fine. Soft landing

 

[acepowerdrive]

the FED is giving itself too much credit for growing the economy.

ultimately the economy will have to grow by it's own merit.


interest rates were 15% in 1982 adn 10% in 1989


so interest rates won't make a damn thing difference in the long run or actually worse. people still won't buy homes or cars even if interest rates was 0% as for stocks/// p/e just goes higher reduce demand for stocks.

the fed artificially stimuluated the economy in 2002/2003 and banks lend recklessly in trying to stimulate the housing sector and this is what you get. people paid too much for homes they can't afford. and all the money was pumped into stock market speculation...meanwhile the gov't got deeper into debt from the war etc.

the only thing the consumer which is demand was higher prices for everything like gas,homes,stocks, food and wages stagnant and worse laid off....

the economy is demand driven.

people can't afford homes cause it's too expensive ,and people won't buy stocks that are going to go bankrupt or decreasing in earnings and have no future growth....

i don't need the FED or gov't to tell me what the price should be. the only benefactors of higher prices are current owners of assets and when did do unload there are no takers.

utlimately the price of homes is determined by incomes and stocks determined the earnings and management of the company

Quote from Daal:

lol. So if the fed had not lowered rates then the GLOBAL real estate and credit bubble would have a perfect soft landing, GDP would've been flat and no one would lose a job? You cant make this stuff up

 

[Kassz007]

Quote from piezoe:

That's a commonly stated justification. I've never seen that in print from any Fed source however. I think Scat has the real reason. It significantly understates real inflation and that, of course, saves the Treasury billions and billions in entitlements, and even more crucially, hoodwinks any foreign central bank that is foolish enough to believe the official figure. We must borrow trillions to keep our economy afloat and we want to borrow at the most favorable interest rate possible.

P.S. It has also occurred to me that "cheating" on inflation figures may be part of game played among central banks, as it is inconceivable that the Fed would not have a whole bunch of economists who are experts in the methods used to compute inflation in other economies. Perhaps our tricks are just a response to the tricks of other debtor nation's central banks. If this is what's going on, then that's going to be a high sensitivity area, and you won't be reading about it in the New York Times.

If they leave energy out to understate inflation, then why do they also leave it out when energy prices decline? If they're fudging the numbers to show low inflation, surely they would want to include it at that time.

 

[Kassz007]

Quote from Daal:

Operating earnings is not balooney at all. Yes its earnings before bad stuff, but guess what, bad stuff usually declines once a recession is over, so it DOES provide a good view of what is likely as the SP500 normalized earnings will be

This is true. Operating earnings are supposed to be the core earnings power of the company. Stocks are "supposed" to reflect the actual earnings power of the company. This does not include write-offs and other one time related items.

 

[Landis82]

Quote from covered_call:

Landis is pointing you in the right direct. PE based off trailing earning is of little value. PE based off forward earning is a better gauge of value.

Especially as "Daal" points out, coming out of a huge recession where there was tremendous cost-cutting going on by corporate America.

Thank You.

 

[Kassz007]

Quote from covered_call:

Landis is pointing you in the right direct. PE based off trailing earning is of little value. PE based off forward earning is a better gauge of value.

Forward P/E is the only P/E that matters. That's why a company can produce a good quarter with good numbers, but the stock gets smashed when they lower guidance. Historical P/E is just that, historical.