Bloomberg: Stocks at 25.8x Earnings

By: TraderMark Tuesday, September 09, 2008 1:26 PM

(so in a housing slump, credit contraction, consumer retraction economy - we will have record earnings growth next quarter? got it - Kool Aid time)

``The market is pricing in the expectation of a good quarter, but we just don't see it,'' said Philip Orlando, who helps manage $350 billion as chief equity market strategist at Federated in New York. ``The fundamentals are going to be poor, earnings are going to be bad, and there are going to be more huge writedowns. We think stocks probably need to work 5 to 10 percent lower over the next month or two.''

Analyst estimates were at least 26 percentage points too high since the fourth quarter of 2007 as they failed to anticipate more than $500 billion of subprime-related bank losses and a slowing economy, according to data compiled by S&P and Bloomberg. (missed it by THAT much)

A combination of rising prices and falling earnings caused S&P 500 valuations to surge more than 20 percent this quarter, the biggest increase of any major market, making them the most expensive since November 2003. (remember, this is all based on the theme that as the world devolves into chaos and anarchy, the U.S. will rebound first and carry the torch - I doubt that very much - I believe the rest of the world will need to rebound and pull us out of the muck. Remember, we are the nexis of all the problems in the first place - how the heck are we going to lead anything?)

The index's price-earnings ratio rose above 25 three times in the last five decades, data compiled by Bloomberg show. The last was in 2001, during the bear market that followed the bursting of the dot-com bubble. The increase in valuations preceded a plunge that helped erase about half the market value of U.S. companies. (so we're at a level only reached 3x times in 50 years - that's not good)

S&P 500 companies will report aggregate earnings of $21.69 a share in the current quarter, a gain of 3.9 percent from a year ago, and $24.62 a share in the final three months of 2008, 62 percent higher than last year's fourth quarter, based on projections compiled by S&P. (Kool Aid)

``The U.S. economy, while not strong, has a greater visibility of the bottom,'' said Gayle, the Richmond, Virginia- based chief investment strategist at RidgeWorth, which oversees $70 billion and went ``overweight'' U.S. stocks a month ago.

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