My take on the valuations is that a gorilla leader should sell at 1.5x its long term rate of growth. So we should take csco at .72 currently, multiply by 60, which is 1.5x the midrange growth of 30-50%, and we get a price of 42.
If we work backwards, I can tell you that the csco example is interesting because my numbers suggest csco should never have been more than 100, it hit 155 I think, and it should not have gone under 40, and its at 40% less than that.
If you take a gorilla at only 1x long term growth, you are at screaming bargain levels. We are there. The real problem is that we went from using multiples of 2-2.5x growth rates to using less than 1x growth rates in one year. Pretty tough.
I'll say it again: the only way, the ONLY way we aren't at screaming buy levels is if the fed causes us to go into a deep recession, and if that is compounded by soaring energy prices. It is more likely that the economic slow down will causes energy demand to ease enough that when that is combined with increasing supply, that energy prices willl fall, and that when that is combined with an easy money supply scenario, the markets will reflect a strong recovery, probably within 3 months.
However, I see that the fed is too restrained, and consumer demand is still strong, so the disastrous scenario has a reasonable chance to play out.
Some folks on the threads who are obviously handicapped when it comes to economics are suggesting that the blame ag game is a cop out. They are purposely missing the point. AG made a huge mistake in the fall, but that is only half the equation. It's the current mistake that is the real deal. He has 2.5 points of room and can use it quickly and avoid ANY possibility of disaster. But he is massaging it, talking the economy up, toying with the dollar, creating tax cut hopes, suggesting the tech market has overreacted, blah, blah, blah. He needs to ease and now, or he risks meltdown. Look, I think what he is doing is actually going to work, but I can't understand why he is risking failure. |
