Snip from Alan Abelson of Barrons (06/21)
"...it's precisely the contrast with 1982 that makes us so dubious that the current surge is anything more than a spirited rally in a bear market. Interest rates at the time were in the clouds and had no place to go but down; interest rates now are scrapping bottom and, if one looks past next week or next month, have no place to go but up.
The aforementioned Alan Newman in his latest and, as always, worthwhile CrossCurrents commentary points out some other notable differences between today's market and that in 1982 (in fact, between today's market and those of every other postwar bear market bottom). In 1982, stocks sold at 7.9 times earnings, yielded 6.3%, were priced at less than one times book value and one-third of sales. Currently, by contrast, stocks sell at 28 times earnings, yield 2%, are priced at 2.75 times book and 1.3 times sales.
In other words, this market is anything but cheap by any standard of valuation. As a matter of fact, as we've noted before, those incredibly rich multiples smack more of bull-market tops than of bear-market bottoms. The bulls -- fundamentalists, technicians, hybrids, no matter where they're coming from -- shrug off the striking high valuations as irrelevant. But isn't determining values what the stock market is all about? So how can value possibly ever be irrelevant?
ANOTHER THING THAT GIVES US the willies about this market is that the worst stocks have gone up the most. Alan Newman is instructive here, too. He notes that since prices hit their lows in March, the various high-tech trusts and indexes have taken rides to the moon.
For example, the Merrill Lynch Biotech HOLDRS (BBH) shot up nearly 47%. Recently, he took a look at the companies that comprise the trust and discovered that only half had any earnings and these sported an average P/E of 58. One additional piece of information about the companies making up the biotech trust: five insiders bought, 94 insiders sold; the ratio of shares sold to shares purchased was 67 to 1.
The same exercise performed on the Goldman Sachs Semiconductor Index Fund (IGW), also up around 47%, shows that nine of the top 10 issues in the fund have an average P/E of 77.3 (the tenth is in the red). Insider sellers among the companies making up the fund outnumbered buyers by 81 to 2 and the ratio of shares sold to shares bought was a staggering 1,665 to 1.
But what do officers and directors know, eh?"
Good Luck to all.
Peter |
