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Mix-Ansicht- comstock.com - Our Position on Valuation - Cosa, 05.09.2002, 11:47
- Stocks are still overvalued..... Interview - Cosa, 05.09.2002, 12:05
comstock.com - Our Position on Valuation
-->Hi,
hier der tägliche Kommentar von comstock.com mit einem interessanten Chart - pdf.
<font size="5">Our Position on Valuation</font>
The Barron's interview is now displayed on our home page under"Comstock in the News".
Sandra Ward did an excellent job of asking questions that hit at the heart of many of the themes we have been discussing in these daily comments for the past few years. However, there was one theme that was not dealt with in detail in the interview that we consider very important; the concept of this market being over or under-valued.
Almost all Wall Street strategists and pundits use some form of the"Fed Model" to show why the stock market is extremely under-valued. They consistently use forward estimates of 'operating' earnings and then make some adjustments for the lower interest rates and inflation. This is usually done by comparing the earnings yield to the yield on 10-year treasury bonds.
We on the other hand, believe that the only important data to use for the P/E valuation metric are 'reported' trailing twelve-month earnings not adjusted for interest rates. We believe the attached chart (shown at the bottom of this comment) is without a doubt the best way of determining whether the stock market is over or under-valued. You can see the past history of what investors paid at market peaks and at market troughs. They are presently paying over 3 times what they normally paid at the end of bear markets. You can find other metrics in the Limbo, Limbo section on our home page.
We are essentially challenging the hoax that Wall Street has continued to perpetuate upon the American public and for that matter even to institutions who have accepted 'forward' 'operating' earnings adjusted by interest rates as the best means of determining over or under-valuation of the U.S. stock market. First of all forward earnings are just about impossible to predict very far in the future. Who do you think was able to predict that earnings would drop in half in one year (2000 earnings of $50 followed by 2001 of $25)? Using 'operating' earnings is even more ludicrous. 'Operating' earnings exclude write offs, and just came into existence about a decade ago because corporate America was writing off everything but the kitchen sink, and not including the expense of the write offs in operating expenses. In other words, if a CEO decided to build a plant to produce automobile tires while the main business produced automobiles, and the new venture failed, all the CEO had to do was convince the auditors that the write off didn't pertain to the normal operations. He then could entitle the closing of the tire business as a one-time event and exclude the"write off" of the plant from expenses. The problem was (and is) that the 'write offs' occurred year after year.
The difficulty we have in adjusting the P/E ratios for the low inflation and interest rates that exist presently is that, unlike most present models that go back a few decades, we go back 75 years to observe the P/E investors paid for the 'reported' trailing twelve months of earnings.
Inflation and interest rates were even lower during most of this period of time. In fact, interest rates didn't rise above the present levels until the mid 1960's. Therefore, if we adjusted for interest rates and inflation it would make our case (of extreme over-valuation) even stronger.
~ Reported Earnings P/E Ratios
Das Interview folgt gleich.
Gruss
Cosa
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