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Strategies & Market Trends : Roger's 1998 Short Picks -- Ignore unavailable to you. Want to Upgrade?

To: Lazlo Pierce who wrote (5336)	3/22/1998 3:39:00 PM
From: Ploni	Read Replies (3) \| Respond to of 18691

Basically the average stock is selling for four times what it would be selling for, historically. However, as long as there's still more money out there to pour into the market, the momentum will continue. I imagine that one day the music will stop ...

To: Lazlo Pierce who wrote (5336)	3/22/1998 11:18:00 PM
From: Oeconomicus	Respond to of 18691

David, re "Camelot? Or Fudge-a-Lot?", Alan Abelson wrote about the same thing in Barron's. He provides a table of the write-offs that the Street assumes away as non-recurring for the S&P 500: 1997 $4.32 1996 $2.45 1995 $3.35 1994 $1.50 1993 $5.30 1992 $4.70 1991 $5.80 1990 $2.55 For 1997, assuming these charges away adds 11.1% to the S&P's earnings and knocks 2.6 off the market PE. Also, by looking at "operating" net, the S&P shows 9.9% growth instead of the 5.4% growth using the reported numbers, after charges. Now, I could see why the numbers might have been big in 1991 as the last recession was ending that year, but why are they getting bigger now? Call me a cynic, but I can think of two reasons. Either real ongoing expenses are being classified as extraordinary to make operating earnings appear bigger, or companies are taking extra charges now when they know they will be ignored so that they can show better earnings down the road when things aren't going so well. In either case, the fact that these "non-recurring" charges seem to keep recurring is reason enough to look only at the very bottom line, reported net not operating net. And if you look closely, you'll also see that this bottom line number is, in fact, shrinking. As I have noted over the last few weeks, trailing 4 quarters net for the S&P 500 has fallen as more companies have reported, including those with a January quarter-end. Abelson shows $40.84 for 1997 while the table in the "Market Laboratory" section shows $39.77 now (which, BTW, brings the PE to 27.6). BTW, there was a letter a few weeks ago in Barron's taking Abby Cohen to task for comparing current "operating earnings" PEs to historical periods when there was no such number reported or tracked. She argued that PEs are not that high compared to previous periods of high PEs, but it was obviously an apples to oranges thing. This is the kind of selective reasoning that got us to 1099 on the S&P. Regards, Bob