patrick.net

I don't think it will be going through a price correction anytime soon.

With helicopter Ben out there, markets will stay pretty high as long as all the unused liquidity is directed at the stock markets like it is now.

There are many who OBSESS over Heli-Ben.

So much so, they fail to see anything outside the USA.

ECB actions of late are far more relevant than the Fed's "stay the course" meaning it's only action is remaining at ZIRP.

Vicente says

There are many who OBSESS over Heli-Ben.

Vince,

It's because his policy drives markets up. Banks are given loans that are practically free. Since banks aren't loaning most of the money out, instead they use them to buy up stocks which causes an upward movement on the stock market.

B.A.C.A.H. says

I don't think this is completely true. If I did not take the traditional IRA deduction when I put the money in, I don't think I have to pay the tax when I take it (the principal only) out. At least I hope not.

If you contributed to a traditional IRA but didn't take the deduction...you may be entitled to a tax refund from the government, but I don't think you can decide to not pay taxes when you withdraw the principal portion of the money...If you didn't take the deduction, you ought to have used a Roth, in which case all withdrawals are non-taxable...

FortWayne says

It's because his policy drives markets up. Banks are given loans that are practically free. Since banks aren't loaning most of the money out, instead they use them to buy up stocks which causes an upward movement on the stock market.

Yes, but Federal Reserve is not doing any special QE right now.

Therefore stock market moves upward likely due to something else. I can postulate all sorts of other things, but European Central Bank moves tops my list of suspects.

Anyone else getting market acrophobia now?

Seems like a minor correction to me at this point.

*RING* RING

Hello, Ben Bernanke's office, for a liquidity injection press 1. To speak to an operator press zero.

That said, I liquidated today some options contracts and a few stocks. I had already harvested dividends on them a time or two and had some gain. Still holding AAPL.

In S&P500 companies, worker productivity is at an all time high. In 2007, the companies generated an average of $378,000 in revenue for every employee on their payrolls. Last year, that figure rose to $420,000. Hiring is up as well, though a lot of it is overseas. Bullish for S&P500 funds, but that does not necessarily translate into jobs here. Some feel that companies will have to start hiring soon as they've wrung as much as the can out of the existing workforce with efficiency gains.

Vicente says

Hello, Ben Bernanke's office, for a liquidity injection press 1. To speak to an operator press zero.

Love it! +1.

According to Bloomberg:
The price-earnings ratio for the S&P 500 fell 8.9 percent last year, and even after the multiple rose to 14.2 yesterday, it’s still 14 percent below its average since 1954, data show.
and a counterpiont of from SmartMoney:
The cyclically adjusted P/E ratio, which uses 10 years of profits to make the calculation, is about 22, well above its long-term average of about 16. While the current level is lower than at the peaks of 2000 and 2007 -- one a bubble, the other fueled by easy money -- it is about where it was when the stock market peaked in 1966, just before entering 16 years of essentially flat performance.

I think I'm with SmartMoney.

www.multpl.com

Fork, I'm still trying to find some good data, but what do you think will happen to the Shiller PE Ratio once earnings from the mid-2000's get dropped (think FIRE from happier times)? Just trying to wrap my brain about what the Shiller PE Ratio reflects.

EBGuy says

Fork

It's "freak"..."weather-freak." But that's ok, it's just an internet identity. ;)

Shiller PE is just the "trailing 10 year" PE ratio rather than the usual "trailing twelve month" PE ratio. It takes overall S&P 500 company earnings over the last 10 years. The idea is to "filter out" the effect of economic cycles.

For example, "cyclical" companies (durable goods makers like GE, Caterpillar, Deere, Ford, GM, etc) will have massive PE ratios (100x or more) during recessions when their earnings tank during recession. It's an artifact of dividing by very small numbers, not a realistic measure of valuation.

EBGuy says

what do you think will happen to the Shiller PE Ratio once earnings from the mid-2000's get dropped (think FIRE from happier times)?

It's my impression that the whole point of Shiller PE is to ignore the short-term fluctuations. Shiller PE gives you the long-term view. It doesn't tell you what might happen in the short term. Short term market movements are anyone's guess. They're simply a reflection of whatever is in the news as well as the general mood.

I'm thinking the EuroFiasco will be back in the news again at some point and cause more volatility. And perhaps an opportunity to get back in at lower prices.

Not surprising: the higher the market PE ratio, the worse future returns are likely to be.

It's "freak"..."weather-freak."
I get a D- for reading comprehension; I always read it as What the Fork. Obviously I missed the r in weather.
The ten year span in the Shiller PE (aka Cyclically Adjusted PE Ratio) does some nice smoothing on a business cycle (a peak to trough can be around ten years, YMMV). However, at this juncture, I'm still at a loss as to why I care about earnings from 10 years ago as the current PE (1 year trailing) is rational (less than 16). A lot of those earnings 10-5 years ago were FIRE voodoo goosed by free money via the securitization chain. If the current PE remains rational moving forward, we should see a steady decline in Shiller PE moving forward as we 'lose' the craziness of the mid 2000s.
And that's a big if, as we're still fighting the scatter chart you posted. Also, I don't believe Crisis Eurozone is over until we see Eurobonds, and that's probably a ways off.

EBGuy says

I get a D- for reading comprehension; I always read it as What the Fork. Obviously I missed the r in weather.

It's ok. "Honest Abe" called me "what the f***er 80" so you're mistake is pretty mild.

EBGuy says

However, at this juncture, I'm still at a loss as to why I care about earnings from 10 years ago as the current PE

My understanding is that it's the average annual earnings (inflation adjusted) of the past 10 years, not the 1-year earnings of 10 years ago.

See: www.multpl.com/faq

Weatherman, you are correct in your understanding. When I say "earnings from 10 years ago", that is shorthand for "the 1/10 contribution of inflation adjusted earnings from 10 years ago". My point is that half the current trailing P/E is made up of 'juiced' earnings from the mid-2000s. Shiller would probably respond, "You borrowed from the future back then, pay the piper now, da Shiller PE don't lie". He may be right. Paying the piper happens in hundreds of small ways as debt is repudiated; so, perhaps I'm too optimistic now.

EBGuy says

Weatherman, you are correct in your understanding. When I say "earnings from 10 years ago", that is shorthand for "the 1/10 contribution of inflation adjusted earnings from 10 years ago".

I also get a D- in reading comprehension.

EBGuy says

My point is that half the current trailing P/E is made up of 'juiced' earnings from the mid-2000s. Shiller would probably respond, "You borrowed from the future back then, pay the piper now, da Shiller PE don't lie".

True, but the reduced earnings during the crash are also included by now.

Regardless, I still say stocks are expensive. With alternative investments paying so little, I think folks are piling into stocks. I don't want to "follow the crowd", that's a good way to lose money. If interest rates (real interest rates) go up, bond prices will drop and ordinary bank CD's will become more attractive and money will flow out of stocks.

I'm mostly in cash right now. It's the worst asset class right now (thanks to inflation), except for all of the others. ;)

If you factor in 2009's negative earning, the P/E is very high.

Wall street is saying that negative earning shouldn't count.

I'm getting nervous because only Nazi's grow food now. Vincente made me aware of that fact. Thank you for sharing your wisdom and experince. I have this recurring dream of Hitler in a cornfield planning death camps for whoever dares to think about planting some beans. Its really rough out there in farmland I agree. Klan rallys and such are happening everywhere.

mE thinks since they are running a huge deficit more than their 43 predecessors. But maybe not the last predecessor. Maybe we might want to condsider not invading anyone anymore. The "wolf pack" really dosen't need us that bad. They could get say oh Korea or say Romania to get on point from now on. Everyone needs a turn on point its U.S. military etiquette.

So much for my opinion on leadership do anything but for Gods sakes don't stop stealing. If Ivan and Aristotle ever stopped stealng and invading well that will probably be when Jesus comes back. Although Aristotle will never acknowlege Ivan cause thats in bad taste in ANY church.

I hope you liked Hitlers tractor I found it on Ebay. Some people in Kansas own it I guess. I wouldn't buy it you may not come back.