"stocks are underowned"

That's elitist code for "we need some stupid money to come in here and buy this from us before the bottom falls out!"

For months now Wall Street has been saying out loud they need a way to attract the retail investor back into the market.

Run the price up high enough so they jump in because they don't want to miss the boat. It works every time.

Quote:

It works every time.

No it doesn't. There were nearly 3 generation that didn't speculate after the great stock crash of 1929. We get one more nasty sell off, that will do it for many generations to come.

Karl...I clicked on your link above for Blogtalk and there is no reference to today's show.

Just went off the air -- give it a few minutes and the podcast will show up.

You were too late to catch it live ;-)

I know...darn it!!!!!

Sometimes I have been able to join the program after its start, but not today.

It is playing alright for me now.

The latest sum of trailing reported earnings ending 9/30 was 86.5. If you divide 1500/86.5, you get 17.34. That gets us to today, but omits the latest quarter. I found these figures on the S&P site, on an excel spreadsheet. I did a lot of work with these figures 10 years.

Dividends are inflated the last quarter, as companies paid out extra dividends to front run potential tax increses. In any case a 2% dividend is a record low if you take the last 20 years out of history. Never had it been below 3% for more than a few months in prior history.

Here is 141 years of data for any of you that want to see how inflated the market is compared to history. Anyone you hear on CNBC that tells you we are at a historic low valuation on stocks is either a liar or too damn stupid to even be able to speak on the subject. Incompetent or dishonest? Is that a good source of information?

Shiller put this data together years ago to back up his first book, Irrational Exuberance. I did a lot of study on this data roughly 10 years ago. Anyone who can comprehend the true valuation model of stocks would know not to own any stock, save something that was a lead pipe cinch for the past 15 years or more. Ben won't fix this. He will only turn your money into inflationary gains you will owe taxes on.

http://www.econ.yale.edu/~shiller/data.h....

One measure Schiller uses is PE10. I can't recall what PE10 is, but I do know it is an inflation adjusted stream of earnings over the past 10 years. It is over double what cheap values are. The next recession will strip half the earnings out of the SPX, just like it did the last 2 times. There is no guarantee they will come back next time.

Invest a dollar today in the stock market and in 17.34 years (according to Mann) your get your dollar back.

No guts no glory.

@crztmorse... the only ways you get your money back is through dividends or stock appreciation. Companies don't have to pay dividends and the appreciation requires someone else to value the company higher than you do. The whole mantra of P/E and time to get your money back is bull**** for a few reasons: earnings are accounting based not cash based, they don't have to pay out any earnings if they don't want to, and even if they did, a lot of these companies would crater without CAPEX which is not factored into earnings.

It isn't quite that way. The true return of a stock over time is the percentage dividend plus the growth rate. Study those Schiller figures and tell me what the expected PE of the stock market is? Remember we are at a peak and twice in the last 13 years, earnings have pretty much disappeared. The great secret is the growth depends on inflationary growth. It can't get bigger without inflation. Certain stocks can. Can anyone really tell the winners when they go public? I think a lot of people could see INTC and MSFT having big time growth potential when they went public. AAPL too, but how long did you have to wait for AAPL? The history of the entire market is different though.

If you look at the dividend on the market and look at inflation, is the market returning anymore than inflation on a current basis? The problem is, 2% is an insufficient dividend, so even if you do get a little real growth, changing the divisor or the CPI in more simple terms, isn't real growth. In order to get the dividend to 3%, the price would have to remain in place or fall for a few years. We would also have to go through some years of inflating real growth or increasing private debt.

The formula I learned in the school of finance for the financial price of a stock was D/(K-G). Risk free return has been described as a real 3%. In order to get the 9% they boast about long term, you need 3% inflation and 6% real growth plus dividend. Play with those Schiller figures over the long run. You will find real growth is only about 1% to 1.5% and I would suspect it has a lot more to do with population growth than effective growth. Productivity can only be kept as profit for the short run, as labor and competition draw that away from a given corporation and of course, the revenues of a corporation cannot exceed the spending power of its customers. This tells me the model requires a 4.5% to 5% dividend as a starting place to achieve such returns. Though we might achieve temporary new highs in a market, it will take time to actually be able to buy the market and expect to hold it long term and achieve blind returns they tell you it will achieve.

What years do they point to, when stating stocks have returned blah, blah, blah? 1950 is a popular bench mark. Go to the Schiller data and see what the dividend was in 1950? It was way the hell up there. 1926 was another. Dividends in 1926 were 4.7% at the start of that year. To get to a 4.7% dividend in todays market, you would need to more than halve the price of the market. You would also have to hope dividends would continue.

If we have a real debt crisis, dividends will shrink, not grow. Many of the companies on the market are also of junk quality and there are very few top investment grade companies. In a credit crunch, a lot of high flyers could suddenly go to zero, ala WCOM, ENE and others. They rated GM relatively high investment grade, while the market was making them pay 9% on long term bonds in 2003. Both the market and the rating agencies turned out wrong, as the bonds went to near zero. There is a lot of junk being financed today at relatively low rates. That cheap leverage won't be available for long.