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Strategies & Market Trends : Bob Brinker: Market Savant & Radio Host -- Ignore unavailable to you. Want to Upgrade?

To: kahunabear who wrote (5251)	5/30/1998 4:25:00 AM
From: Skeeter Bug	Read Replies (2) \| Respond to of 42834

whip, another consideration related to valuations is the reality of reported eps. two issues impact them a lot. the options technique of transferring payroll costs directly to shareholders w/o passing the income statement is one issue. this "game" works as long as we are in a bull market and employees accept options in lieu of salary. bear market = "game over" and salaries will sky rocket or key personnel walk, imho. the fact that everyone seems to have recurring non-recurring charges is a second issue. some have postulated that a few companies are writing down old inventory to $0 and then selling it and counting the whole price as "earnings." dimd is one supposed perp of this "game." eps may be over stated by 20-30%. that 28 pe looks a little low to me. food for thought. skeets out...

To: kahunabear who wrote (5251)	5/30/1998 3:56:00 PM
From: Boca_PETE	Read Replies (2) \| Respond to of 42834

WS: RE: <With an S&P 500 ... P/E near 28, I am still concerned. After all, the inverse of 28 is an implied return of 3.6% on current earnings. > Some would say the S&P500 regarding recurring operating earnings (now 24 P/E) is more meaningful than the 28 P/E computed with all earnings effects, including non-recurring special items. Using the 24 P/E, the reciprocal is 4.2% - still low, but not as extreme as the percent you quote. If your point is that stocks are now priced for perfection (low interest rates, low inflation, slow growth in profits), I agree with that point. Could the P/E go even higher ? Perhaps if the Long Bond rate drops to the 5.25%-5.5% range later this year. Further increased multiples investors might be willing to pay for stocks could be partly or mostly offset by lower than forecast earnings due to impact possibly approaching for the rest of the year from the Asian slowdown. I'm relying on Brinker's long-term timing expertise to know when the top is approaching or has occurred. Over the year's, his timing calls have impressed me. Regarding the book values and the Price:Book Ratio, I place little importance on these figures for the following reasons: 1. Book values for long-lived asset in capital intensive industries are based on historical costs which have no bearing on current fair values. Book values generally don't reflect true values of intangible assets. 2. It seems reasonable that companies that pay out cash (thus reducing book value) to buy back shares would have low book values to divide into today's high stock values. It's my impression that P/E's are used more often to judge the valuation of a stock than book values. 3. With all the changes in accounting principles over the years, book values today may not be comparable for long historical periods. Regarding "non-recurring charges", these are and always have been a fact of life - now they're reported in detail for everyone to see and handle as they please. They are not a "game" in a sinister "let's hoodwink the shareholder" sense. I'm for full disclosure and it seems that disclosures today are certainly full - count the pages in today's annual reports today compared to 10 or 20 years ago. Companies generally can't play games because quality companies are audited by Big-6 CPA firms each year and monitored on a quarterly basis by them. They must keep their accounts and report to shareholders and the public in accordance with generally accepted accounting principles. There will always be a few bad apples, but one should not then generalize their behavior as being industry wide. P