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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: patron_anejo_por_favor who wrote (7635)	8/23/2001 4:34:38 PM
From: Wyätt Gwyön	Respond to of 74559

My estimate is $30.00 for 2002, if they remove all the pro-forma BS... they will NOT remove the BS, and the media will NEVER tell the other side of the story, until it is too late, IMO. WSJ had a great article on this recently.

To: patron_anejo_por_favor who wrote (7635)	8/23/2001 7:50:15 PM
From: Stcgg	Respond to of 74559

S&P Estimates from Comstock Partners.. It's Just Not Logical (7/9/01 Article) The S&P 500 is trading at a PE ratio of about 27 times earnings. This PE is almost double the historical norm of 15 times earnings over the past 75 years. If we were to use other valuation metrics such as price to dividends, price to cash flow, price to sales, or price to book value the valuation premium would be more than double and in some cases more than quadruple the norm over the past 75 years. All of these metrics are quantified on the right hand side of our website in the report called “Limbo, Limbo”. The main point we are attempting to make is not just the fact that the market is trading at a minimum of 2 times the norm, but that it is trading at these levels in a very unhealthy economic and financial environment. So, instead of trading down to the norms of the past we believe the market should be trading at a discount to the norm. The environment we are talking about follows: 1) US corporations have just announced layoffs averaging more than 164,000 monthly over the past 7 months. Household employment has plunged by over one million in the past five months, the biggest decline since 1980. These statistics are staggering to contemplate since the US economy is wholly dependent upon consumers at the present time. We believe laid off consumers don’t spend as much. 2) Debt levels in the corporate and consumer sectors are at record levels by a wide margin. 3) The second largest economy in the world, Japan, has just entered their 4th recession in the past decade, while the US is also probably in a recession. Europe, South America, and other parts of Asia are showing enough weakness to portend a worldwide recession. 4) With the worlds most widely used commodities breaking down such as copper, lumber, and energy, it looks like we could be entering severe worldwide deflationary conditions. (See Deflation daily comment Friday 7/6/01) 5) Consumer and business confidence have declined substantially. 6) The financial bubble that has just burst caused a wealth decline of $6 trillion in the US and $11 trillion worldwide. This is producing an enormous reverse wealth effect. 7) Earnings in the US are declining at a very rapid rate with pre-announcements occurring on a daily basis. The declines have spread to include old economy stocks and recently have even had an effect on casino and wine stocks. 8) The quality of earnings is also very poor with recurring write offs not included in operating income statements. The compensation expenses are being supplemented by stock options, which are no longer as attractive. Pension fund and inventory gimmicks are prevalent and capital gains are reported as operating income. 9) The Current Account Deficits are running at record levels of over $400 billion a year. Naturally, the consequences of the deficits are a tremendous amount of US dollars being held abroad. While the US dollar is strong it has a deleterious effect on the earnings of multinational companies and if it weakens, the weakness will be exacerbated by foreign liquidation. If a weakening US dollar scenario unfolds, it would also make the Fed’s easing position much more difficult. 10) Public participation in the stock market has never been greater. Of the $4 trillion in equity mutual funds, $3.75 trillion came in during the 1990’s decade (most of it coming in during the peak of the bubble in 1998 and 1999). When the public participates in anything this enthusiastically, they are always wrong. Again, we believe the above factors offset any Fed easing and any tax cut and should eventually cause a stock market decline of major proportions. Since valuations of the major indices (DJIA, S&P 500, NASDAQ) are at least double the historical norm we believe they will fall by at least another 50%. © 2000 Gabelli & Company, Inc. All rights reservered. Member, NASD and SIPC.