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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club
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To: marc ultra who wrote (9793)11/11/1999 6:34:00 AM
From: Justa Werkenstiff  Read Replies (2) of 15132
 
Marc: It seems that we can get to 28x earnings in a perfect environment as measured in mid July. This is getting close to Brinker's 30x ceiling of 1998 unless he has modified his thinking on this issue. Back in July, the consensus was that the Fed. would tighten once and be gone. Wrong.

Right now we are 25.23x year 2000 Brinker earnings estimates as measured by the S & P 500 at $54.50. I believe Brinker sees these estimates as somewhat conservative. So 28 x $54.5 is 1526 as measured by the S & P 500. So there is 11% upside now to get us back to 28x earnings in a perfect environment. But are we still in a perfect environment? I don't think so. Inflationary expectations are increasing. That is the trend. Greenspan is in the mix. True, there are some signs of some slowing in the economy but not enough at this point especially if the market gets you that "wealth effect." Yes, those hikes might take some more time to give further impact on the economy. But that "wealth effect" may well accelerate economic activity in the face of these rate hikes. Wage inflation expectations of the 70s have been replaced by asset inflationary expectations in my view. And to the extent that those expectations are realized through multiple expansion, the spending public will take these profits into the economy. And in this environment, Greenspan will be back again and the market has not discounted this event. That is the risk in this market and at high multiples this is a bigger risk than usual.
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