Sunday, October 12, 2008

For the record... 
I called a bear market in almost everything in sight back in March of last year.

Here's what I wrote:

Looks like bonds will be under pressure. Real estate will be under pressure. International stocks will be under pressure (actually, already are). Growth stocks will be under pressure. Is this the Perfect Storm?

I can't wait.

Yep. Pretty exciting for a long guy, but now that it's here, I can't say I'm terribly enthused about it. Forward P/Es are down around the 13 level, according to the Morningstar data on the Vanguard 500 fund, which I'm using as a quick proxy, with a dividend yield of around 2.47%.

Not too bad, but those forward-looking estimates were assuming normal times, and I would have to regard them as obsolete. I think the actual earnings next year will be quite a bit less than projected, and the real P/E is closer to 20x earnings right now, looking forward. So forward multiples will expand (because of declining earnings), or stocks will continue to fall until the the ACTUAL P/E, looking forward, is 12 or less (based on dividends of 2.5% or less.)

A big chunk of dividends will disappear, as financial services companies...most of them dividend payers themselves, struggle to recapitalize by retaining earnings.

Nevertheless, look at Bank of America, now trading at 11.5x earnings, with a yield of 12.27%! Very tempting, although that yield I suspect will fall, as BofA shores up its balance sheets. It may stop altogether for a while. And of course, as every stock investor should ALWAYS keep in mind, it COULD go to zero!

Remember, though...last year's earnings are not this year's earnings. Foreclosures will rise if there is a recession, forcing mortgage holders out of work or forcing upside-down homeowners to relocate to find employment. So again, I see that 11.5x earnings as closer to 16x or so. Maybe even higher.

I had zero in equities going into the fall, outside of retirement money I won't need for 25 years, though that was pretty heavy in stocks, so I got stung on paper. But I had gone entirely to cash outside of retirement, having sold the last of my non-qualified stock funds about a month ago.

Because I was super prescient?

No. Nobody's that precient. Because of the career change and I needed to cover living expenses while training, ramping up, etc.

Long term, I like the buying opportunity. But ONLY with long term money as I still smell a downside in the short term for stocks. Long-term, however, I think the upside exceeds downside potential now.

No, this is not advice. This is just my take on things for now. YMMV.

Splash, out


Labels: , , ,

Comments: Post a Comment

This page is powered by Blogger. Isn't yours?

Site Meter

Prev | List | Random | Next
Powered by RingSurf!

Prev | List | Random | Next
Powered by RingSurf!