Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: pater tenebrarum who wrote (99271)	5/3/2001 11:39:47 AM
From: Box-By-The-Riviera™	Read Replies (1) \| Respond to of 436258

bronson comments on a comment from longwaves: -------------------------------------- Thanx, Joe, for your comprehensive and attractive chart work. I notice your latest yellow box starts some 6 months or so before the first of the Fed's recent four rate cuts started, which you may confirm is an unintentional misalignment. Also, your chart shows that in late 1969 and especially late 1981, it took many months before the market P/E ratio started rising. Interestingly, because of the recent market rally and because earnings are actually declining, the market P/E ratio has already risen close to 25%. However, both despite and because of these fine points, I certainly agree that Fed rate cuts are not having the effect that they have had during all the previous recessions since WWII. Of course, we believe this is because the US economy has turned into a deflationary environment where the last parallel was the deflationary Supercycle bear market period of the 1930s and 1940s. Consequently, we expect that investors will eventually be bearishly reminded that early in that deflationary Supercycle bear market period, the US stock market was not responsive to six consecutive Fed rate cuts, even as the market P/E ratio spiked due to always more volatile corporate earnings declining more than equity prices, however that occurred then largely after the market bottomed. It's déjà vu all over again. Bob Bronson Bronson Capital Markets Research P.S. I'm posting this to LWs with what I understand to be your continued permission to do so. -----Original Message----- From: Joseph Ehardt [mailto:jehardt@concentric.net] Sent: Wednesday, May 02, 2001 4:04 PM To: lwside1@yahoogroups.com Subject: [lwside1] The Impact of FOMC Discount Rates Cuts on the S&P P/Es This time the FOMC would appear to be pushing on a string. Usually a trend of rate cuts help to stimulate an expansion in the S&P 500's P/E. In the past, shown by the rose box, the origin of such P/E expansion has been from levels much lower than this current cycle. The pundits have been eager to make the point that one should not fight the Fed, especially when it has made 3 or 4 rate consecutive rate cuts, no doubt in no small part due to the previous historical patterns shown in this chart, and yet it is clear that the current cycle in entirely different from the previous ones. In a sense this presents a dilemma for the FRB. It is being stimulative when the equity valuations are very high -- STILL. Moreover, in the phase before this year's rate cuts, it was being punitive at a time when the broad market (not just some narrowly focused indices like the Nasdaq-100) was already engaged in reducing some of the excesses that had found its way into equity prices. I believe the FRB when it says that it is focused on monetary policy and not on the appropriate price level of the stock market (though in truth that is disingenuous, since the market can have a profound impact on potential systemic failures that clearly would require the FRB to intervene). And yet, what is Wall Street thinking about when it concludes that the current FOMC rate cut cycle will put a floor under equities are recent levels? Using the E/P (earnings yield ratio) analysis urged by Bob Bronson (but not shown in the above chart), fully diluted net earnings after taxes last week were at the equivalent of a P/E of 30, which is quite different from the Standard & Poors calculations shown above, which itself is very rich in historical terms. Joe To Post, send to: lwside1@eGroups.com To Unsubscribe, send a blank message to: lwside1-unsubscribe@eGroups.com Your use of Yahoo! Groups is subject to docs.yahoo.com