Agreed. However, do you know how historical P/E numbers for S&P500 that are available have been calculated? They sure as heck have not been calculated by taking the average of the P/E ratios for 500 constituents! Those with no or negative earnings don't even have P/E ratios!
What I did is not some weird fancy experiment. I'm pretty sure - but I'd like some confirmation from someone in the know - that what I have done is what must and has been done in calculating the S&P500 P/E. For example Schiller keeps a publically available historical record of P/E ratios going back to the 1800's (I've misplaced the link) but I'm pretty sure that I understand it to be calculated as:
the total float market capitalization of the 500 companies divided by the total earnings of the 500 companies (where unprofitable companies detract from the earnings of the profitable ones).
Which is what I did. I'm pretty sure that when you hear some high-powered financial talking head saying the SP500 P/E is such and such, he's quoting the number like I calculated it: currently 17.53. I'd like some confirmation from someone, though.
I've been diddling around this evening with the finviz data for the S&P 500 and I come up with a "P/E" ratio of 17.53. I better explain my methodology, though.
SP500 is a float weighted index. This means it's a market cap weighted index where the market cap is calculated based only on the floated shares (those available for trade). As such any calculation of P, E, or P/E should be weighted accordingly, and I did so.
I want negative earnings to be accounted for in any sensible P/E ratio. Since a P/E ratio is undefined for a single company which has zero or negative earnings, this means we're going to have to treat all 500 companies in the sP500 as a single entity - think conglomerate. So I...
Calculate the float weighted average price of the sP500 index constituents, and get a P = $35.70, then...
Calculate the float weighted average earnings per share and get a TTM EPS = $2.04. Finally, I ...
Calculate a P/E ratio of 35.70/2.04 = 17.53 for the SP500
Make sense? If you think so, then I'll go ahead and do the calculation for the DJIA, and then see what I get for the large, mid, and small finviz categories.
Same feeling here, Vad. Bonds have been crucified the last while and so there's an incentive to rebalance that way now. On the other hand, it's hard to argue against some economic improvement signals which have finally been appearing. However, rather than this favouring equities in the short term, maybe we're due for a "sell on news" retrenchment to test these giddy breakouts above the May highs.
Not just good, loanletter, but great! The crisis is focusing the collective conscience onto what they've been doing, what they want to do, and what they can do, and it's remarkable to see how these different, new, local ideas that are springing up all share common themes: quality of life, sharing, sustainability, and dignity, to name a few. More remarkable is to see the consistent end-result: economic rejuvenation.
Just a follow-up observation to what was said at the conference:
King (governor of the Bank of England):
"The Queen famously asked: 'Why didn't you see this crisis coming?' Well, we did! We debated it at the IMF for 10 years. We could all see the hardly prudent and unsustainable 60:1 leverage ratios of our banks. ... Well, we've been hard at work and have mostly succeeded in shifting these unsustainable positions onto the public now..."
Makes the hair on the back of my neck stand up :(
and, Volcker (after sitting through the PBC and BOJ govs statements),...
Volcker: (to moderator) "...hmmm, hum, hah, let me remind you that you promised me that I would have fun here today."
Not too many knee-slapping moments (*) but if you're a fan or a foe of Central Banks, you need to listen to these people.
(*) maybe a couple (paraphrasing):
1) Moderator: (after introducing Goodhart and Taylor) "So, one of the things we will determine today is, does Goodhart's Law apply to Taylor's Rule?" (chuckle, chuckle, chuckle,...)
2) Moderator: "So, Mr. Goodhart, you seem to be saying that a barrel of monkeys could have set interest rate policies (or Taylor's rule could be used) and it wouldn't have made any difference to the crisis (2003-2007)?"
Goodhart: "yes."
Moderator: "And Mr Taylor, you seem to be saying that if interest rates had been set correctly (not Greenspans's 1%) the crisis would have been averted?"
Taylor: "yes."
Anyway, pour yourselves a stiff drink for this bunch, and enjoy...
With all due respect, analyst65, I'd venture to say that for most of us, the question of "How long does this artificial buying in the extremely over, over bought zone going to last???" was the ONLY question on our minds for, say the last 1+ month. If YOU forgot to ask that question, perhaps a reassessment of how you assimilate the daily noise and babble of these markets is in order. :)
Anyway, I sometimes wonder if many of you US investors even understand that, during these gut-wrenching pullbacks, your wealth - denominated in greenbacks - is just about the only asset class that's working. Relative to your fellow investors in backwaters like Canada, Mexico, Brazil, India, and Europe, to name a few, if you were just sitting tight today, your house and material possessions, your savings, and your pension investments, including your US stocks and bonds, became relatively more valuable than ours. You might say - yah but it lost value! If so, sorry to say, you just don't get it: Wealth is relative! Congrats on the great day, globally speaking :)
Now, why don't you take some of your new-found wealth and buy up some cheap Canadian stocks and bonds? We've got some great banks, mining, and oil companies that have dropped about 10% in price, relatively speaking, over the last week. Forget those 30-year US treasuries they are dangling in front of you with their sparkling new 4% yields - we all know that's a loser :)
One point of clarification. The two traditional indices (US$ index (green), and the Broad Trade Index (blue) use the scale on the right, and they are scaled so that they were both 100 on Jan 1, 1999. So we see that since that time the US$ index is down to 77 (-33%) and the Broad index is down to 87 (-13%).
Try as i might, I couldn't get my red GDP index to begin at 100 also (I would have had to set each of the constituents to scale to 100 at the start). So instead I used the left scale for the red index; So it started at 45. Today it is down to roughly 41.5 (-8%) a superior performance to the other two indices.
One last observation: I mentioned the early fear signal entering the 2007 recession. Now that I look closer at it, there was also a rather dramatic "relative" signal entering into the 2001 recession as the GDP index shot up from 44 to 52 (+18%) right before the onset while the other two indices just slowly drifted up from roughly 48 to 51 (+6%) during that same time.
Anyway, I wouldn't try to read too much into the graphs. I was just experimenting. A good GDP index would have to use real-time GDP data but the one I created is all based on 2009 data so its value looking back is questionable to say the least :)
and downloaded the 2009 GDP estimates for all countries.
Then I used the ones comprising the top 80% of world GDP (Euro 21, US 20 , China 13 , Japan 6 , India 5, Russia 3, Brazil 3, Mexico 2, South Korea 2, Canada 2, Indonesia 1, Turkey 1, and Australia 1)
and created a US$ index of these currencies weighted by %GDP. FRED gives you the capability of making transformations of their data sets.
The resulting graph shows
- in red, using the left scale, the US$ index, GDP-weighted that I created.
- in green, using the right scaled to 100 in 1999, the popular US$ index
- in blue, using the right scaled to 100 in 1999, the Broad US$, trade weighted index.
One notable difference is how the GDP-weighted index (red) signalled the fear-trade, at the beginning of the last recession, a good 6 months before the US$ and broad index did.
Other than that, I just thought some of you might be interested in the data manipulations one can do at FRED.
"Europe is up. Euro autos mostly up. But not French banks. I dunno why that is."
You keep saying this, Les. Why does it suprise you that banks are laggards over the last few years. They had become an abnormaly high % of the capitalization of markets globally. They clearly have more risk than was thought. They still have dilutions in their future as they struggle to meet the Basel capital requirements, and until they get the green light from their overseers to reinstate dividends or dividend growth, there are better income and growth sectors out there.
There'll come a time for the financials to shine, but not until they are put into a normal place.
Oil's tumbled since yesterday noon, giving back all the gains of the week (another $2 and it will be a 50% retracement of the $12 move since Aug. 24). US$ free-fall's stopped (paused?). CAN$ getting hammered with oil. Apparently this is all good news in China as overnight Shenzen and Shanghai are both up between 5%-6% whereas the rest of Asia and Europe are solidly red. Shakeout? Pullback? Or major topping action? I wish I knew...
"So much for those traders who say the long term does not matter."
If there is any one actually saying that, I suppose their timeframe is probably quite short, and for trades like that, they're probably right. But if you're not a HFT wannabe, there's probably not much else of importance than the long-run.
Pascal Wilhem (sp?) had a few great stock analyses posted here a while back where he tempered every assessment by noting support levels that would be relevant to the short-term (day-traders), intermediate term (swing-traders), and long-term (the big fish;the big money managers; the big boys who move the market for years with their moves - you know, the Waddell-Reids and their like; the ones who, in Apr '09, drew a line at Sept/Lehman level and said, "o.k., if this rally weakens there, we'll sell").
Myself, I can only look at the long-term and sometimes try and scalp some intermediate swings 'cause I've got a job. Furthermore it ain't all that interesting these days.
I see that VLT trend line you're referring to. I also see a VLT death-cross a couple of weeks ago(120dMA, 240dMA), though prices are trying to stay above the MA's. For sure this an interesting juncture. But really it's just levels that are only interesting to the short-term and swing traders: the big fish are fast asleep where we are.
Just finished tallying up the results of the month. What a month! There are forces at work here that have got to be unique. We've come full circle in a great 70-year interest rate cycle and everything is frantic.
But TZA??? Do you have a death wish? Maybe holding it for 30 minutes to an hour. These 3X abominations are probably only serving the purpose of regressing us speedily back to some sane trajectory that we lost badly during 1982-2007.
Just stare at this attached chart and ask yourself - is this a sensible place to invest your money?
Why not send W. Buffett that letter, Grym? He now owns a bit of infrastructure appropriate to your project. You've tried the supposed leaders; might be time to try the real U.S. leaders. W.B. and Berkshire at the head of such a project might just be unstoppable, both politically and economically.
On an entirely different vein, I was thinking about the austerity rallies yesterday in Europe. One Union leader was quoted that "it's all the bankers fault"... and then I was reading a bit about 1720, and the aftermath of the South Sea bubble. Parliamentary legislation was actually debated, in the U.K., that "bankers should be put into bags of snakes and tossed into the Thames"! Cooler heads prevailed.
Looks like the sector rotation monkeys are right on schedule. Market's extended, gold had its nice pop, sleepy energy complex wakes up today (TSX broke out to new 2-year high today), US$ perilous but oversold, and on the other side of the rotation circle, financials lagging badly. Looks like it's setting up for a defensive October.
Agreed. However, do you know how historical P/E numbers for S&P500 that are available have been calculated? They sure as heck have not been calculated by taking the average of the P/E ratios for 500 constituents! Those with no or negative earnings don't even have P/E ratios!
What I did is not some weird fancy experiment. I'm pretty sure - but I'd like some confirmation from someone in the know - that what I have done is what must and has been done in calculating the S&P500 P/E. For example Schiller keeps a publically available historical record of P/E ratios going back to the 1800's (I've misplaced the link) but I'm pretty sure that I understand it to be calculated as:
Which is what I did. I'm pretty sure that when you hear some high-powered financial talking head saying the SP500 P/E is such and such, he's quoting the number like I calculated it: currently 17.53. I'd like some confirmation from someone, though.
Bill, SiO2,
I've been diddling around this evening with the finviz data for the S&P 500 and I come up with a "P/E" ratio of 17.53. I better explain my methodology, though.
Make sense? If you think so, then I'll go ahead and do the calculation for the DJIA, and then see what I get for the large, mid, and small finviz categories.
It's been coiling-up for a break through parity for months now. Decisive move today.
http://www.google.com/finance?q=NYSE:FXC
Same feeling here, Vad. Bonds have been crucified the last while and so there's an incentive to rebalance that way now. On the other hand, it's hard to argue against some economic improvement signals which have finally been appearing. However, rather than this favouring equities in the short term, maybe we're due for a "sell on news" retrenchment to test these giddy breakouts above the May highs.
I think the markets might react favourably to such an announcement. With any luck, maybe their credit cards aren't maxed-out yet. :P
Not just good, loanletter, but great! The crisis is focusing the collective conscience onto what they've been doing, what they want to do, and what they can do, and it's remarkable to see how these different, new, local ideas that are springing up all share common themes: quality of life, sharing, sustainability, and dignity, to name a few. More remarkable is to see the consistent end-result: economic rejuvenation.
Thanks for sharing this video.
Very good, Otoko! Thanks for sharing this with us.
1:30
Just a follow-up observation to what was said at the conference:
King (governor of the Bank of England):
"The Queen famously asked: 'Why didn't you see this crisis coming?' Well, we did! We debated it at the IMF for 10 years. We could all see the hardly prudent and unsustainable 60:1 leverage ratios of our banks. ... Well, we've been hard at work and have mostly succeeded in shifting these unsustainable positions onto the public now..."
Makes the hair on the back of my neck stand up :(
and, Volcker (after sitting through the PBC and BOJ govs statements),...
Volcker: (to moderator) "...hmmm, hum, hah, let me remind you that you promised me that I would have fun here today."
:)
Finally got a few hours to sit down and watch the Oct. 11 Conference video today. Heavy-, heavy-weight panels...
Taylor (Taylor's Rule)
Goodhart (Goodhart's Law)
Rivlin (U.S. Budget Dir.)
Romer (W.H. Counsel)
Snow (Treas, Sec.)
King (BOE gov)
Volcker
Trichet
Xiao Chuan (PBC gov)
Fukui (BOJ gov; originator of QE?)
Not too many knee-slapping moments (*) but if you're a fan or a foe of Central Banks, you need to listen to these people.
(*) maybe a couple (paraphrasing):
1) Moderator: (after introducing Goodhart and Taylor) "So, one of the things we will determine today is, does Goodhart's Law apply to Taylor's Rule?" (chuckle, chuckle, chuckle,...)
2) Moderator: "So, Mr. Goodhart, you seem to be saying that a barrel of monkeys could have set interest rate policies (or Taylor's rule could be used) and it wouldn't have made any difference to the crisis (2003-2007)?"
Goodhart: "yes."
Moderator: "And Mr Taylor, you seem to be saying that if interest rates had been set correctly (not Greenspans's 1%) the crisis would have been averted?"
Taylor: "yes."
Anyway, pour yourselves a stiff drink for this bunch, and enjoy...
http://tinyurl.com/2c9lkhc
With all due respect, analyst65, I'd venture to say that for most of us, the question of "How long does this artificial buying in the extremely over, over bought zone going to last???" was the ONLY question on our minds for, say the last 1+ month. If YOU forgot to ask that question, perhaps a reassessment of how you assimilate the daily noise and babble of these markets is in order. :)
Anyway, I sometimes wonder if many of you US investors even understand that, during these gut-wrenching pullbacks, your wealth - denominated in greenbacks - is just about the only asset class that's working. Relative to your fellow investors in backwaters like Canada, Mexico, Brazil, India, and Europe, to name a few, if you were just sitting tight today, your house and material possessions, your savings, and your pension investments, including your US stocks and bonds, became relatively more valuable than ours. You might say - yah but it lost value! If so, sorry to say, you just don't get it: Wealth is relative! Congrats on the great day, globally speaking :)
Now, why don't you take some of your new-found wealth and buy up some cheap Canadian stocks and bonds? We've got some great banks, mining, and oil companies that have dropped about 10% in price, relatively speaking, over the last week. Forget those 30-year US treasuries they are dangling in front of you with their sparkling new 4% yields - we all know that's a loser :)
Glad you liked it, Johnny.
One point of clarification. The two traditional indices (US$ index (green), and the Broad Trade Index (blue) use the scale on the right, and they are scaled so that they were both 100 on Jan 1, 1999. So we see that since that time the US$ index is down to 77 (-33%) and the Broad index is down to 87 (-13%).
Try as i might, I couldn't get my red GDP index to begin at 100 also (I would have had to set each of the constituents to scale to 100 at the start). So instead I used the left scale for the red index; So it started at 45. Today it is down to roughly 41.5 (-8%) a superior performance to the other two indices.
One last observation: I mentioned the early fear signal entering the 2007 recession. Now that I look closer at it, there was also a rather dramatic "relative" signal entering into the 2001 recession as the GDP index shot up from 44 to 52 (+18%) right before the onset while the other two indices just slowly drifted up from roughly 48 to 51 (+6%) during that same time.
Anyway, I wouldn't try to read too much into the graphs. I was just experimenting. A good GDP index would have to use real-time GDP data but the one I created is all based on 2009 data so its value looking back is questionable to say the least :)
Was having a little fun at the St.Louis Fed (FRED) data site the last hour.
http://research.stlouisfed.org/
First, I went to the CIA data site
https://www.cia.gov/library/publications/the-world...
and downloaded the 2009 GDP estimates for all countries.
Then I used the ones comprising the top 80% of world GDP (Euro 21, US 20 , China 13 , Japan 6 , India 5, Russia 3, Brazil 3, Mexico 2, South Korea 2, Canada 2, Indonesia 1, Turkey 1, and Australia 1)
and created a US$ index of these currencies weighted by %GDP. FRED gives you the capability of making transformations of their data sets.
The resulting graph shows
- in red, using the left scale, the US$ index, GDP-weighted that I created.
- in green, using the right scaled to 100 in 1999, the popular US$ index
- in blue, using the right scaled to 100 in 1999, the Broad US$, trade weighted index.
One notable difference is how the GDP-weighted index (red) signalled the fear-trade, at the beginning of the last recession, a good 6 months before the US$ and broad index did.
Other than that, I just thought some of you might be interested in the data manipulations one can do at FRED.
"Europe is up. Euro autos mostly up. But not French banks. I dunno why that is."
You keep saying this, Les. Why does it suprise you that banks are laggards over the last few years. They had become an abnormaly high % of the capitalization of markets globally. They clearly have more risk than was thought. They still have dilutions in their future as they struggle to meet the Basel capital requirements, and until they get the green light from their overseers to reinstate dividends or dividend growth, there are better income and growth sectors out there.
There'll come a time for the financials to shine, but not until they are put into a normal place.
Oil's tumbled since yesterday noon, giving back all the gains of the week (another $2 and it will be a 50% retracement of the $12 move since Aug. 24). US$ free-fall's stopped (paused?). CAN$ getting hammered with oil. Apparently this is all good news in China as overnight Shenzen and Shanghai are both up between 5%-6% whereas the rest of Asia and Europe are solidly red. Shakeout? Pullback? Or major topping action? I wish I knew...
If there is any one actually saying that, I suppose their timeframe is probably quite short, and for trades like that, they're probably right. But if you're not a HFT wannabe, there's probably not much else of importance than the long-run.
Pascal Wilhem (sp?) had a few great stock analyses posted here a while back where he tempered every assessment by noting support levels that would be relevant to the short-term (day-traders), intermediate term (swing-traders), and long-term (the big fish;the big money managers; the big boys who move the market for years with their moves - you know, the Waddell-Reids and their like; the ones who, in Apr '09, drew a line at Sept/Lehman level and said, "o.k., if this rally weakens there, we'll sell").
Myself, I can only look at the long-term and sometimes try and scalp some intermediate swings 'cause I've got a job. Furthermore it ain't all that interesting these days.
I see that VLT trend line you're referring to. I also see a VLT death-cross a couple of weeks ago(120dMA, 240dMA), though prices are trying to stay above the MA's. For sure this an interesting juncture. But really it's just levels that are only interesting to the short-term and swing traders: the big fish are fast asleep where we are.
Just finished tallying up the results of the month. What a month! There are forces at work here that have got to be unique. We've come full circle in a great 70-year interest rate cycle and everything is frantic.
But TZA??? Do you have a death wish? Maybe holding it for 30 minutes to an hour. These 3X abominations are probably only serving the purpose of regressing us speedily back to some sane trajectory that we lost badly during 1982-2007.
Just stare at this attached chart and ask yourself - is this a sensible place to invest your money?
Why not send W. Buffett that letter, Grym? He now owns a bit of infrastructure appropriate to your project. You've tried the supposed leaders; might be time to try the real U.S. leaders. W.B. and Berkshire at the head of such a project might just be unstoppable, both politically and economically.
On an entirely different vein, I was thinking about the austerity rallies yesterday in Europe. One Union leader was quoted that "it's all the bankers fault"... and then I was reading a bit about 1720, and the aftermath of the South Sea bubble. Parliamentary legislation was actually debated, in the U.K., that "bankers should be put into bags of snakes and tossed into the Thames"! Cooler heads prevailed.
Looks like the sector rotation monkeys are right on schedule. Market's extended, gold had its nice pop, sleepy energy complex wakes up today (TSX broke out to new 2-year high today), US$ perilous but oversold, and on the other side of the rotation circle, financials lagging badly. Looks like it's setting up for a defensive October.
Newton got skinned alive by the climax of the South Sea Bubble. After losing a princely fortune (around $6 million pounds in today's money) he stated: