Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
US Presidential Election Forecast Matrix, Stock Market Uncertainty - 29th Oct 20
Stock Market Turning? Look For These Support Levels - 29th Oct 20
Silver: A Conceivable Dead-Cat-Bounce on the Cards - 29th Oct 20
Stocks are Strong but be Aware of this Continuing Pattern - 29th Oct 20
The Most Profitable Way To Play The Gold Boom - 29th Oct 20
Why You Should Hire An Accountant To Complete Your Tax Return - 29th Oct 20
Global Banking: Some Sectors Look as "Precarious as Ever" - 28th Oct 20
Silver Price Minor Dip Possible Before 2nd Major Upleg Starts - 28th Oct 20
�� How to Carve a Simple and Scary Pumpkin Face for Covid Halloween 2020 �� - 28th Oct 20
Gold Price One Last Dip Likely Then Major Upleg to New Highs - 28th Oct 20
Smart Money Is Going All-In On This New Gold Frontier - 28th Oct 20
Gold Stocks Still Correcting - 27th Oct 20
Gold and Crypto: Is This How Charts Look Before A Monetary Collapse? - 27th Oct 20
Silver's Coming Double Trigger Shotgun Price Explosion - 27th Oct 20
The $126 Billion Gold Opportunity in Australia - 27th Oct 20
Tips to Breeze through Your Spanish Classes Online - 27th Oct 20
Try The “Compounding Capital Gains” Strategy Today - 26th Oct 20
UK Coronavirus Broken Test and Trace System, 5 Days for Covid-19 Results! - 26th Oct 20
How the Coronavirus is Exacerbating Global Inequality, Hunger - 26th Oct 20
The Top Gold Stock for 2021 - 26th Oct 20
Corporate Earnings Season: Here's What Stock Investors Need to Know - 25th Oct 20
�� Halloween 2020 TESCO Supermarkes Shoppers Covid Panic Buying! �� - 25th Oct 20
Three Unstoppable Forces Set to Drive Silver Prices - 25th Oct 20
Car Insurance And Insurance Claims and Options - 25th Oct 20
Best Pressure Washer Review - Karcher K7 Full Control Unboxing - 25th Oct 20
Further Gold Price Pressure as the USDX Is About to Rally - 23rd Oct 20
Nasdaq Retests 11,735 Support - 23rd Oct 20
America’s Political and Financial Institutions Are Broken - 23rd Oct 20
Sayonara U.S.A. - 23rd Oct 20
Economic Contractions Overshadow ASEAN-6 Recovery - 23rd Oct 20
Doji Clusters Show Clear Support Ranges for Stock Market S&P500 Index - 23rd Oct 20
Silver Market - 22nd Oct 20
Goldman Sachs Likes Silver; Trump Wants Even More Stimulus - 22nd Oct 20
Hacking Wall Street to Close the Wealth Gap - 22nd Oct 20
Natural Gas/UNG Stepping GAP Patterns Suggest Pending Upside Breakout - 22nd Oct 20 -
NVIDIA CANCELS RTX 3070 16b RTX 3080 20gb GPU's Due to GDDR6X Memory Supply Issues - 22nd Oct 20
Zafira B Leaking Water Under Car - 22nd Oct 20
The Copper/Gold Ratio Would Change the Macro - 21st Oct 20
Are We Entering Stagflation That Will Boost Gold Price - 21st Oct 20
Crude Oil Price Stalls In Resistance Zone - 21st Oct 20
High-Profile Billionaire Gives Urgent Message to Stock Investors - 21st Oct 20
What's it Like to be a Budgie - Unique in a Cage 4K VR 360 - 21st Oct 20
Auto Trading: A Beginner Guide to Automation in Forex - 21st Oct 20
Gold Price Trend Forecast into 2021, Is Intel Dying?, Can Trump Win 2020? - 20th Oct 20
Gold Asks Where Is The Inflation - 20th Oct 20
Last Chance for this FREE Online Trading Course Worth $129 value - 20th Oct 20
More Short-term Stock Market Weakness Ahead - 20th Oct 20
Dell S3220DGF 32 Inch Curved Gaming Monitor Unboxing and Stand Assembly and Range of Movement - 20th Oct 20
Best Retail POS Software In Australia - 20th Oct 20
From Recession to an Ever-Deeper One - 19th Oct 20
Wales Closes Border With England, Stranded Motorists on Severn Bridge? Covid-19 Police Road Blocks - 19th Oct 20
Commodity Bull Market Cycle Starts with Euro and Dollar Trend Changes - 19th Oct 20
Stock Market Melt-Up Triggered a Short Squeeze In The NASDAQ and a Utilities Breakout - 19th Oct 20
Silver is Like Gold on Steroids - 19th Oct 20
Countdown to Election Mediocrity: Why Gold and Silver Can Protect Your Wealth - 19th Oct 20
“Hypergrowth” Is Spilling Into the Stock Market Like Never Before - 19th Oct 20
Is Oculus Quest 2 Good Upgrade for Samsung Gear VR Users? - 19th Oct 20
Low US Dollar Risky for Gold - 17th Oct 20
US 2020 Election: Are American's ready for Trump 2nd Term Twilight Zone Presidency? - 17th Oct 20
Custom Ryzen 5950x, 5900x, 5800x , RTX 3080, 3070 64gb DDR4 Gaming PC System Build Specs - 17th Oct 20
Gold Jumps above $1,900 Again - 16th Oct 20
US Economic Recovery Is in Need of Some Rescue - 16th Oct 20
Why You Should Focus on Growth Stocks Today - 16th Oct 20
Why Now is BEST Time to Upgrade Your PC System for Years - Ryzen 5000 CPUs, Nvidia RTX 3000 GPU's - 16th Oct 20
Beware of Trump’s October (November?) Election Surprise - 15th Oct 20
Stock Market SPY Retesting Critical Resistance From Fibonacci Price Amplitude Arc - 15th Oct 20
Fed Chairman Begs Congress to Stimulate Beleaguered US Economy - 15th Oct 20
Is Gold Market Going Back Into the 1970s? - 15th Oct 20
Things you Should know before Trade Cryptos - 15th Oct 20
Gold and Silver Price Ready For Another Rally Attempt - 14th Oct 20
Do Low Interest Rates Mean Higher Stocks? Not so Fast… - 14th Oct 20
US Debt Is Going Up but Leaving GDP Behind - 14th Oct 20
Dell S3220DGF 31.5 Inch VA Gaming Monitor Amazon Prime Day Bargain Price! But WIll it Get Delivered? - 14th Oct 20
Karcher K7 Pressure Washer Amazon Prime Day Bargain 51% Discount! - 14th Oct 20
Top Strategies Day Traders Adopt - 14th Oct 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

The Overvalued Part of a Stock Market Cycle

Stock-Markets / Stock Market Valuations Aug 18, 2010 - 05:30 AM GMT

By: Richard_Daughty

Stock-Markets

Best Financial Markets Analysis ArticleI had just gotten home from arguing with the in-laws about how they were idiots for not buying gold instead of those stupid stocks and mutual funds, and their laughter was still ringing distastefully in my ears when Eric Fry here at The Daily Reckoning put up a chart of the P/E ratio of the S&P500 over the last 30 years since 1981.


Interestingly, in 1981 the stock market was in a kind of a funk and the Price/Earnings ratio was hitting about 7, which is on the low side, whereupon (thanks to Congress authorizing tax-deferred retirement accounts in 1982) the stock market proceeded for the next 20 years or so, in fits and starts, to rise to, stunningly, a P/E ratio of almost 30 in 2000, whereupon it promptly turned over and has been falling, in fits and starts, for the last 10 years as the price of the S&P went down. Wow! What a ride!

Of course, it has been an entire paragraph where I did not snarl at something, or heap Mogambo Disdain And Scorn (MDAS) on the despicable Alan Greenspan, Ben Bernanke and the whole worthless Federal Reserve, Congress and Supreme Court, so let me say that buying the S&P500 in 2000 for $1,600 to get a P/E of 30 was, if you are even fleetingly familiar with P/E ratios over the last century, absolutely ridiculous, and the morons buying the S&P500, or recommending it, at such stupidly-overvalued prices should have their names and faces posted somewhere in a database of "investing idiots and miscellaneous dangerous lunatics."

I say this because the historical record is crystal-clear: When the P/E ratio goes above 22 or so, it won't be long until the price of the stock falls enough so that the Price/Earnings ratio is back down in the upper teens in a bull market, and back down to around 5 in a severe bear market, whereupon it won't be long until the price rises again on its way to "overvalued" status. That's the nature of cycles.

There are those who think that this historical record-stuff is just old history, now rendered meaningless in an age of monumentally stupid governmental deficit-spending, pandemic crushing debt, and a despicable Federal Reserve always, always, always creating yet more, staggeringly more, tragically more, catastrophically more excess money, which is what caused the problems in the first place!

On the other hand, there are those who do NOT regard the lessons of a couple of centuries of P/E ratios to be irrelevant, and who last think that Wednesday is still considered "current events."

Like, for instance, my wife, who wanted to question me about where I was until almost midnight last Wednesday, which is, I figure "the past" because I have forgotten almost all of it.

So, I told her, "Hey! Hold on! That's ancient history! Why even bring up that old, useless stuff unless you are spoiling for a fight with me, which leads me to ask a question of my own, which is 'Hey! You want get into a fight with me? Huh? Is that what you really, really want? Huh? Is it? Huh? Huh?"

Well, it was, alas, as she is one who also thinks there is valuable information in old data, like what happened last Wednesday or, if you ask her, what happened with this whole P/E thing. And she would be right, as I note that the S&P500 is currently sporting a P/E of around 15 - which is surprising in that we are in a recession and the S&P 500 is still 30% below its high of over 1500 in 2000, ten years ago! Hahaha! Idiots!

So, with every stinking ounce of Unshakable Mogambo Certainty (UMC) I can muster, I say that the price of the S&P500 will fall, in fits and starts, until its P/E ratio gets down to less than 7, probably less than 5, and maybe less than 4.

And this is assuming that earnings don't fall, which they will, and so I wouldn't be surprised if the S&P500 fell to less than 200.

And, with special emphasis to in-laws everywhere, anyone buying a broad basket of common stocks and bonds, but not buying gold, silver and oil to protect themselves against the roaring inflation in consumer prices that will result from an idiot Federal Reserve creating massive amounts of money so that the government can deficit-spend those massive amounts of money, is a moron.

Surprisingly, buying gold, silver and oil is an investing strategy made especially for us morons, because it requires no thinking and, "Whee! This investing stuff is easy!"

Richard Daughty (Mogambo Guru) is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise to better heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron’s, The Daily Reckoning, and other fine publications.

Copyright © 2010 Daily Reckoning

© 2010 Copyright The Daily Reckoning - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules