DOW >17k, how’s everyone’s 401k doing?

[desmond]

[quote=moneymaker]On average earnings are down, on average stock prices are up, I would call this dangerous! I’m thinking bubble, but to make money shorting would be very difficult or very lucky. Look how difficult is was for Bill Ackman to short Herbal Life, and he is a professional. Any business can be propped up, that is the nature of the stock market.[/quote]
Zero Hedge had this article on CYNK on 7/7, look at it now, up 71% TODAY

http://www.zerohedge.com/news/2014-07-07/market-top-meet-1-billion-company-zero-revenues

[an]

[quote=moneymaker]On average earnings are down, on average stock prices are up, I would call this dangerous! I’m thinking bubble, but to make money shorting would be very difficult or very lucky. Look how difficult is was for Bill Ackman to short Herbal Life, and he is a professional. Any business can be propped up, that is the nature of the stock market.[/quote]
Historical data for S&P P/E: http://www.multpl.com/table. Today, it’s sitting around 18-19. In 99-2000, it was 29-33. In 96-97, P/E was around 18-19. Here’s a graph of that data: http://www.multpl.com/. Hardly what I’d call a bubble.

[moneymaker]

I like what Robert Schiller had to say.

[livinincali]

[quote=AN][quote=moneymaker]On average earnings are down, on average stock prices are up, I would call this dangerous! I’m thinking bubble, but to make money shorting would be very difficult or very lucky. Look how difficult is was for Bill Ackman to short Herbal Life, and he is a professional. Any business can be propped up, that is the nature of the stock market.[/quote]
Historical data for S&P P/E: http://www.multpl.com/table. Today, it’s sitting around 18-19. In 99-2000, it was 29-33. In 96-97, P/E was around 18-19. Here’s a graph of that data: http://www.multpl.com/. Hardly what I’d call a bubble.[/quote]

While P/E has historically been measure of valuation I’m not sure it applies as well during this period of borrowing money to do stock buybacks.

For example I have a company that has 1 billion shares that are $100/sh I have total revenue of $50 billion year and earning or $10 billion per year. So my P/E is 100/10 = 10 and my earnings/share = 10/100 = 10. I then borrow $10 billion to buy back my stock. So now my market cap is $90 billion and I have $10 billion in debt and I still have earnings of $10 billion. Now my P/E is 9 and my earnings per share are 10/90 = 11.11. If I do that is my company anymore valuable than it was before? Before I had 10/sh in earnings and 0 debt. Now I have 11.11/sh in earnings and $10 billion in debt. Assume that my revenues and total earnings are flat. I made company look more valuable than it was before on a P/E ratio but I didn’t change asset value of my company in doing so.

[an]

[quote=livinincali]While P/E has historically been measure of valuation I’m not sure it applies as well during this period of borrowing money to do stock buybacks.

For example I have a company that has 1 billion shares that are $100/sh I have total revenue of $50 billion year and earning or $10 billion per year. So my P/E is 100/10 = 10 and my earnings/share = 10/100 = 10. I then borrow $10 billion to buy back my stock. So now my market cap is $90 billion and I have $10 billion in debt and I still have earnings of $10 billion. Now my P/E is 9 and my earnings per share are 10/90 = 11.11. If I do that is my company anymore valuable than it was before? Before I had 10/sh in earnings and 0 debt. Now I have 11.11/sh in earnings and $10 billion in debt. Assume that my revenues and total earnings are flat. I made company look more valuable than it was before on a P/E ratio but I didn’t change asset value of my company in doing so.[/quote]I doubt every company in S&P is doing that. We’re talking about S&P 500 here and the average across the entire index, not just one company trying to manipulate things. BTW, here’s the historical earning of the S&P 500: http://www.macrotrends.net/1324/s-p-500-earnings-history. I don’t see earning declining. There was a slight decline in 2012, but it has more than recovered since then.

In January 2000, S&P 500’s earning was at $68.42 and the index was at 1872. That gives you a P/E if 27.36. in January 2014, S&P 500’s earning was at $102.29 and S&P was at 1848. That gives you a P/E if 18.06. This is an entire index, not likely to be manipulated like you described compare to 1 stock. So, to be in the same ballpark as 99-00 bubble, S&P has to be at 2798 based on today’s earning.

[Author]

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