Back to Bill in France...
*** Oh la la...as we say here in La Belle France...God
does not share His plans with us here at the Daily
Reckoning. But He occasionally drops a hint.
*** The Wall Street Journal reports that P/E ratios are
typically understated, because companies tend to inflate
the divisor, that is...earnings. If earnings were
brought down to GAAP standards, the P/E ratio of today's
S&P 500 would be 36.7 - the highest it has ever been.
*** So, let me pose a rhetorical question; Does it make
sense to own stocks at the highest prices in history
when:
-rate cuts have just been cut for the 7th time -
after which, investors dump stocks!
-consumers are tapped out - savings are at their
lowest level ever, consumer debt at its highest
-durable goods orders are falling - they fell 2%
in June, after a rise of 2.7% in May...car sales
dropped 5% in June
-unemployment is rising - AOL announced another
1700 layoffs yesterday. Ford says it is cutting
5,000 jobs. And Futjitsu is eliminating nearly
15,000 employees...
-world trade growth is off 60% since last year...
while world GDP growth is falling below the IMF's
2.5% recession threshold
-business profits are falling...down 17% in the 2nd
quarter with no sign of improvement...
-And the dollar is, finally, going down?
*** People believe in stocks "for the long run" because
equities tend to go up more often than they go down. But
nature does not give something away without taking
something back. In order for stocks to go up most of the
time, they have to go down A LOT some of the time...
This may be one of those times.
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