The Grand Illusion...
One picture truly worth a thousand words.
Chart of the Day:
chartoftheday.com
"Today's chart illustrates how the recent plunge in earnings
has impacted the current valuation of the stock market as
measured by the price to earnings ratio (PE ratio). Generally
speaking, when the PE ratio is high, stocks are considered to
be expensive. When the PE ratio is low, stocks are considered
to be inexpensive. From 1936 into the late 1980s, the PE ratio
tended to peak in the low 20s (red line) and trough somewhere
around seven (green line). The price investors were willing to
pay for a dollar of earnings increased during the dot-com boom
(late 1990s) and the dot-com bust (early 2000s). As a result
of the recent plunge in earnings and recent stock market
rally, the PE ratio spiked and just peaked at 144 – a record
high. Currently, with 97% of US corporations having reported
for Q2 2009, the PE ratio now stands at a lofty 129."
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Cost cutting, accounting gimmicks, government stimulus, and a
temporary inventory rebuild is not what economic recoveries,
or sustainable earnings recoveries are made of.
Did you see the CEO of grocery chain A&P on CNBC this a.m.?
He said customers are only buying sales items.
Discretionary items like "floral" have disappeared.
The are seeing something not seen before, where store
employees and management are seeing shopping bags
from 2-3 different grocery stores in customers trunks
on a regular basis.... as shoppers are going to 2-3
grocery stores and cherry picking sales items.
The story a few years ago in the entire grocery industry
was upgrading old stores to accommodate the high end
"Whole Foods" and boutique shoppers.
The entire grocery industry embraced this model.
A&P's CEO is now reversing their stores to discount/value
and introducing "generic/in-house" discount brands.
He said this is a "permanent" change, and when questioned
on the word "permanent" - he said yes, permanent, as in
forever.
When questioned further about this, A&P's CEO stated that
they see this as a permanent structural change in the
US economy, consumer spending, and the mindset of shoppers.
He added, they are no longer seeing "any" turnover in part-
time jobs - which has always been a problem. They are seeing
a surge in the use of Food Stamps, as well as a seminal shift
in downgrading from steak to hamburger, and high end prepared
and gourmet foods to "hamburger helper."
A&P is now reversing the entire industry-wide shift to
adding a luxury-boutique store within a store concept,
to a pure value/price concept, and adds that he believes
this is a permanent and historic turning point within
the grocery industry that will never go back.
If he's right, and I believe he is, then that chart above
is worth a lot more than a thousand words.
Remember these words... permanent, historic, and seminal shift.
Tick, tock...
SOTB |
