My Life & Another Drop In The Markets to Come?
Tuesday, April 14, 2009
I know I haven’t posted in a few days and I am sorry. Life has been very complicated for the past few weeks and I have not found much time to write. The kids were on break last week which always changes how and when I work. And lately, my younger daughter, Carissa is having a hard time with mommy working and when she has a hard time, the whole family is impacted. Also, I am very preoccupied with a potential exciting business partnership and have been spending most of my in due diligence. But I have been keeping up on the news - some of which I would like to share. I am especially concerned about the recovery we are seeing in the stock market and whether it is real or “fake” as some think, please read here. Are we looking at the first bottom on the market with more to come? If we look at PE’s of the S&P and believe the concensus of $50 of earnings, what is the right PE mulitple - 14 which would give us and S&P around 700. Or is the “new” PE multiple more like 6-8, which would put the S&P at 300-400? I like Thomas AU’s commentary on this and am cautious we might be in for another down leg here.
And for another great insight from William Black on how he thinks this banking crisis will lead to the end of the Obama presidency - because we “have failed bankers giving advise to failed regulators about failed assets - how can it resukt in anything BUT failure.“ So true…what was Obama thinking when he hired his financial team? Black goes onto say that “the Democrats picked the wrong financial team.“ “Tim Geithner, the current Secretary of the Treasury, and Larry Summers, chairman of the National Economic Council, were important architects of the problems. Geithner especially represents a failed regulator, having presided over the bailouts of major New York banks.“ “Geithner is flouting the law, in naked violation, in order to pursue the kind of favoritism that the law was designed to prevent. He has introduced the concept of capital insurance, essentially turning the U.S. taxpayer into the sucker who is going to pay for everything. He chose this path because he knew Congress would never authorize a bailout based on crony capitalism.“ He goes further to state that Geithner’s PIPP plan essentially “perpetuates zombie banks by mispricing toxic assets that were mispriced to the borrower and mispriced by the lender, and which only served the unfaithful lending agent.“
Wow, alot to take in….not sure where we are heading, but I don’t think it will be smooth sailing from here. OK back to focus on my new exciting partnership - I cant share yet. But I will.
The right multiple might have something to do with interest rates. Past “trough multiples” came at times of high rates.
As to earnings, the key issue is whether one thinks that it is better to look backward or forward. We can measure the past very easily. Then we get to guess about the multiple. Some of us think that the era of massive financial write downs, partly forced by mark-to-market accounting, might be at an end.
Just a thought…
Jeff
Posted by Jeff on 04/30 at 11:31 PM