Wednesday, March 04, 2009

Teleprompter-Deprived Forecast From Obama

The O-and-Savior spake, prophesying thus:

"What you’re now seeing is, profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you've got a long-term perspective on it," Obama said during an appearance with British Prime Minister Gordon Brown


Maybe if the TelePrompter had been operative we would have heard "price-to-earnings ratios."

Does the O-and-Savior know what the P/E ratio actually IS?

Far more important, does he know anything about cyclical market theory?

The link will tell you that the Dow has gone from a P/E of 28 to a P/E of 14--but what it will ALSO tell you is that while 14 is the long-term average, the Dow is still going to go down. It's called a "secular bear," and the Dow could get down to a P/E of 7 or 8 before beginning another secular bull.

In other words, there's no reason to believe that Dow is going up anytime soon.


steveegg said...

Assuming that the earnings don't also continue to crater, a P/E of 7-8 would wipe out all the gains since the 104th Congress showed up on Capitol Hill. I'm beginning to think that's not a coincidence.

Dad29 said...

Well, maybe/maybe not.

The damn bubble had to burst SOMEtime.

Obama & Co. are not helpful, and (arguably) the damage is worse because of them.

But if you think that the cyclical theories are right, (or that there is something to "return to the norm" with or without cycles), then their damage is merely incidental.