Between 1936 and 1998 P/Es were less than 15. At major stock market bottoms P/Es have been around 5. Sure, stocks are less over-valued than they were in 2000, but they are still historically high.
Further (as has already been mentioned), if the earnings decline due to a recession, the P/Es will be even further out of wack.
Perhaps this is the beginning? Everyone has been calling for a pull back.
Not much of a catalyst to precipitate it though, was hoping for something more disasterous.
I expect we will at least ping 5.25% in the short term and we may blow through it.
Pimco's Bill Gross, in a stunning announcement this afternoon, shifted off his long-term (25 year!) bond bull market call to one of a bear market in bond prices. Bill isn't a guy to bet against. He's targeting 6.5% on the 10 within the next 12-18 months! If we get there that puts 30 year mortgage rates in the upper half of the 7% range which will destroy what's left of the housing market.
You know how people (including me) have been saying "we're in the second inning of this mess guys"? Well, now you've got one of the most-respected bond traders and a huge bond fund manager who is predicting that the next few innings are going to have several grand slams hit by the opposing team! If Bill is right this is going to positively POUND interest-rate sensitive stocks, the LBO and private-equity guys!
The bad news here is that these guys need to syndicate about $250 billion worth of new issues in the next couple of months - for deals that were announced and priced, but haven't been closed and syndicated yet. This could cause real trouble - there is no "red letter" warning yet, but you've got a number of these - Chrysler, Sallie Mae, TXU - all of which are not yet really done!
Pimco's Bill Gross, in a stunning announcement this afternoon, shifted off his long-term (25 year!) bond bull market call to one of a bear market in bond prices. Bill isn't a guy to bet against. He's targeting 6.5% on the 10 within the next 12-18 months!
Uh... WOW. I bet Mark Kiesel is laughing his ass off right now and preparing to buy his house back at 50% off.
I expect we will at least ping 5.25% in the short term and we may blow through it.
Pimco's Bill Gross, in a stunning announcement this afternoon, shifted off his long-term (25 year!) bond bull market call to one of a bear market in bond prices. Bill isn't a guy to bet against. He's targeting 6.5% on the 10 within the next 12-18 months! If we get there that puts 30 year mortgage rates in the upper half of the 7% range which will destroy what's left of the housing market.
You know how people (including me) have been saying "we're in the second inning of this mess guys"? Well, now you've got one of the most-respected bond traders and a huge bond fund manager who is predicting that the next few innings are going to have several grand slams hit by the opposing team! If Bill is right this is going to positively POUND interest-rate sensitive stocks, the LBO and private-equity guys!
The bad news here is that these guys need to syndicate about $250 billion worth of new issues in the next couple of months - for deals that were announced and priced, but haven't been closed and syndicated yet. This could cause real trouble - there is no "red letter" warning yet, but you've got a number of these - Chrysler, Sallie Mae, TXU - all of which are not yet really done!
How about Realogy? We just taken private by Apollo, which is a private equity firm.
You and I read the same blog (Market Ticker), and it has been a real learning experience.
I'm still not on board with tech analysis, but KD has presented a pretty convincing case for it.
Watching the TNX over the past 4 weeks has been a phenomenal education. Today's action was a real turd in the punchbowl for equities. I've seen in more than one source that the carnage came about because some hedge funds had to liquidate a bunch of assets to stay in the game.
Everything sold off. Gold and silver, bonds, stocks, Pokemon, beanie babies, etc...
A friend called me tonight and asked for my two cents on today's action. We have been discusing what the end game would look like and always came to the conclusion that the unwinding of leverage in the currency markets, and the debt markets (CDO, CDS, etc.) would make this happen. The rising 10 year has the hedge funds' nuts in a vise, and today, the bond market cranked on the lever for a few spins.
KD says we hit 52.5, and possibly blow through it to 65 (I think my numbers are correct). This party will be long over before we hit 60.
Banks, housing, and retailers are going to get clipped pretty hard. Bear Stearns might have their nuts in a vise as well. I wouldn't mind seeing that handle do a few rotations.
High oil combined with higher interest rates = bad news.
Yeah, while I believe high oil prices and high gas prices aren't helping in the consumer sense, idiots are still driving a ton and buying stuff. No, I think the catalyst was/is/willbe the credit crunch, esp. with the merger mania going on. This is something Jim Jubak eluded to in one of his journals. He's a sharp dude, you all should check him out.
Oh hey, guys, I heard on the radio that this is all just normal, healthy profit-taking. You're sure going to be disappointed when everything rebounds next week and the DOW shoots up to a new record high of 17,000 before the summer is done.
If this bond thingy keeps stinking up the joint, any preannouncements from the bankers, builders, or retailers is going to just crush equities.
A friend and I were talking about the next go-round of quarterly reports on the banksters. It goes like this:
If the 1Q07 numbers for lenders like WM or builders like LEN were as hideous as they were, with all of the damage coming in March, and Jan/Feb being relatively healthy, what is it going to be like when the 2Q07 numbers only have Apr/May/Jun, which are all likely much worse than March? Where do they hide the damage?
If bonds are selling off, and many of these LBOs get cancelled, nobody is going to be in any mood for accounting gimmicks.
Somebody better find a buyer for US debt - and quick.
You gotta think that the year-over-year comps from '06 and '05 should just crush the banks and builders when they publish their '07 reports. All the graphs that cover price action in the housing market over the past 50 years show that this current "correction" has the steepest downslope of any of the previous downturns. There really isn't any hiding this.
If the bond market gets a bid and the LBOs go through, people MIGHT be able to shrug off a bad report.
If the TNX is printing a 55, or so, and LBOs are imploding, the 2Q reports are going to be a real kick in the junk.
With all the leverage out there, you gotta figure that it won't take much of a scare to get some real fireworks going.
What analogy can I use that combines the RBNZ's rate hike and sheep shagging? I'd better stop while I'm just a little behind.
Oh hey, guys, I heard on the radio that this is all just normal, healthy profit-taking. You're sure going to be disappointed when everything rebounds next week and the DOW shoots up to a new record high of 17,000 before the summer is done.
Tim - More comments like that and we might have to start calling you "Timshugy"
I never understood how a sock stuffed with beads was worth more than 50 cents.
I felt like a crack dealer selling those things. Mostly I sold them to stores and mall stands. The funny part was when someone would see me pulling them out of the safe (yeah, I had a portable safe for storing them) in a parking lot, run over and start offering me money.
Ty (the maker of beanie babies) had an excellent marketing department that precisely managed where, what and how many each store, city and region got of a particular model, and put all kinds of little variations into the line. At one point, I was getting $70 for a bear with Polyethelene pellets when the non-PE (pvc I think) version was going for $20. All because the "PE" was rare! HAHAHAHAHAHA....
I lived in rural Hawaii at the time of the Beanie Baby craze, so I didn't see the furious insanity that surrounded the collectors. People in Hawaii were either surfing, working, or on vacation, so chasing stuffed socks wasn't a high priority. I would read about it, and whenever someone would go to the Mainland and return, they would talk about the BBs.
It was almost like the US was an exotic culture, and BBs were religious idols.
Pokemon was big (large Filipino and Japanese population in Hawaii), and of course everyone was buying Amazon - kinda like today.
It was amazing that the entire population was involved in some form of wild speculation. That didn't change when Pokemon, BBs and .com stocks went bust. They changed to houses.
I think that a few years from now, someone will be on a message board discussing how they felt like a drug dealer when they were schlepping toxic mortgages and Las Vegas tract homes. "Can you believe people were paying 15X income for a modest, poorly built Ballard Craftsman?"
Okay well I was being sarcastic on Thursday with that "healthy profit-taking" comment, but then Friday the DOW gained like 150 points, and so far today it's up another 30.
Dow was up on Friday. PM's were down heavily. I'm not making any assumptions but could it be possible that profits were taken in PM's and thrown back into the stock market?
I believe we're at or near a market top, that any further moves upward are the result of even more unsustainable mania and worldwide liquidity.
Look at all the M&A activity - that's clearly a sign that the big whigs are trying to cash in one last time before the crash. I'm assuming the crash will be fueled by a dramatic rise in the cost to borrow money.
Maybe the 10yr is the catalyst we are waiting for... either way, it'll be something - and probably very soon.
Comments
Further (as has already been mentioned), if the earnings decline due to a recession, the P/Es will be even further out of wack.
Not much of a catalyst to precipitate it though, was hoping for something more disasterous.
Check out the article over at the Big Picture today
Interest ticks up - guess what.... All those private equity deals go KABOOM.
That's what's been driving the market. Look for one of those puppies to fail and you'll really see things drop, IMHO
Market Ticker: Look Out Below!
Uh... WOW. I bet Mark Kiesel is laughing his ass off right now and preparing to buy his house back at 50% off.
I can hear him now...
WOOHAHAAHA
How about Realogy? We just taken private by Apollo, which is a private equity firm.
This could be part of it as well:
http://www.theoildrum.com/node/2639
High oil combined with higher interest rates = bad news.
You and I read the same blog (Market Ticker), and it has been a real learning experience.
I'm still not on board with tech analysis, but KD has presented a pretty convincing case for it.
Watching the TNX over the past 4 weeks has been a phenomenal education. Today's action was a real turd in the punchbowl for equities. I've seen in more than one source that the carnage came about because some hedge funds had to liquidate a bunch of assets to stay in the game.
Everything sold off. Gold and silver, bonds, stocks, Pokemon, beanie babies, etc...
A friend called me tonight and asked for my two cents on today's action. We have been discusing what the end game would look like and always came to the conclusion that the unwinding of leverage in the currency markets, and the debt markets (CDO, CDS, etc.) would make this happen. The rising 10 year has the hedge funds' nuts in a vise, and today, the bond market cranked on the lever for a few spins.
KD says we hit 52.5, and possibly blow through it to 65 (I think my numbers are correct). This party will be long over before we hit 60.
Banks, housing, and retailers are going to get clipped pretty hard. Bear Stearns might have their nuts in a vise as well. I wouldn't mind seeing that handle do a few rotations.
This is going to be interesting.
A friend and I were talking about the next go-round of quarterly reports on the banksters. It goes like this:
If the 1Q07 numbers for lenders like WM or builders like LEN were as hideous as they were, with all of the damage coming in March, and Jan/Feb being relatively healthy, what is it going to be like when the 2Q07 numbers only have Apr/May/Jun, which are all likely much worse than March? Where do they hide the damage?
If bonds are selling off, and many of these LBOs get cancelled, nobody is going to be in any mood for accounting gimmicks.
Somebody better find a buyer for US debt - and quick.
You gotta think that the year-over-year comps from '06 and '05 should just crush the banks and builders when they publish their '07 reports. All the graphs that cover price action in the housing market over the past 50 years show that this current "correction" has the steepest downslope of any of the previous downturns. There really isn't any hiding this.
If the bond market gets a bid and the LBOs go through, people MIGHT be able to shrug off a bad report.
If the TNX is printing a 55, or so, and LBOs are imploding, the 2Q reports are going to be a real kick in the junk.
With all the leverage out there, you gotta figure that it won't take much of a scare to get some real fireworks going.
What analogy can I use that combines the RBNZ's rate hike and sheep shagging? I'd better stop while I'm just a little behind.
Tim - More comments like that and we might have to start calling you "Timshugy"
Eleua - your beanie baby comment cracked me up.
Hey, don't mock the Beanies. I was able to avoid having a real job one summer just by flipping bears.
I felt like a crack dealer selling those things. Mostly I sold them to stores and mall stands. The funny part was when someone would see me pulling them out of the safe (yeah, I had a portable safe for storing them) in a parking lot, run over and start offering me money.
Ty (the maker of beanie babies) had an excellent marketing department that precisely managed where, what and how many each store, city and region got of a particular model, and put all kinds of little variations into the line. At one point, I was getting $70 for a bear with Polyethelene pellets when the non-PE (pvc I think) version was going for $20. All because the "PE" was rare! HAHAHAHAHAHA....
It was almost like the US was an exotic culture, and BBs were religious idols.
Pokemon was big (large Filipino and Japanese population in Hawaii), and of course everyone was buying Amazon - kinda like today.
It was amazing that the entire population was involved in some form of wild speculation. That didn't change when Pokemon, BBs and .com stocks went bust. They changed to houses.
I think that a few years from now, someone will be on a message board discussing how they felt like a drug dealer when they were schlepping toxic mortgages and Las Vegas tract homes. "Can you believe people were paying 15X income for a modest, poorly built Ballard Craftsman?"
I gotta say... What the heck is going on here?
Look at all the M&A activity - that's clearly a sign that the big whigs are trying to cash in one last time before the crash. I'm assuming the crash will be fueled by a dramatic rise in the cost to borrow money.
Maybe the 10yr is the catalyst we are waiting for... either way, it'll be something - and probably very soon.