......Without acrimony, I've been hearing that stocks are cheap for the past 400 points of the S&P's downward move. Declaring any asset class to be "cheap" during what may be the most devastating financial/economic/credit unwinding in history is a dangerous business, in my view.
www.minyanville.com/articles/...ies-GNMA-spx/index/a/19711/p/2 Stocks are "cheaper" than they were if all you care about is price. But consider this: What if stocks were historically expensive at the beginning of this decline, considering most any reasonable valuation? But then a nasty thing happened: The global economy began to experience a coordinated de-leveraging, earnings began to fall worldwide, unemployment began to soar, and governments around the globe were all forced to bail out companies, industries and individuals - all at a time when risk aversion was climbing to new heights.
At the expense of missing a potential imminent move upward in the equity market, I ask the question openly, and I'm dying for an answer: If you have no clue how far the unwinding will go -- and have no reasonable expectations of earnings per share -- how can you tell me stocks are cheap? I don’t believe anyone can. Markets can become "oversold" and due for a bounce; as a technician, I respect these bounces.
But don’t forget: Bear markets get oversold and stay oversold.
I will say this simply, though I may be wrong: While stocks may look cheap, relative to what I believe lies ahead for the global economy, there will be better entry points ahead, even despite the 40% bludgeoning stocks have taken so far this year.
I've been told that stocks look cheap on a "trailing-earnings" number; to be frank, they do look cheap, based on the last 12 months - except that that number is as useful as remembering what my golf handicap was in 1981.Perhaps more importantly, I would like to focus on Wall Street analysts' earnings estimates, because stocks around the globe look very cheap if you believe them - which I most definitely do not.The graphic below, courtesy of Bloomberg LP, shows us the current and forward P/E estimates for many of the world’s major stock indices. What we see are single-digit P/E ratios - again, if you believe the estimates.Someone has to be wrong here, right? Either I'm too pessimistic about the economy, or the analysts are correct. We can’t both be right.
