Well, We've Officially Had A "Correction"... But Stocks Still Aren't Cheap - The Business Insider Well, We've Officially Had A "Correction"... But Stocks Still Aren't Cheap - The Business Insider

Sunday, June 3, 2012

Well, We've Officially Had A "Correction"... But Stocks Still Aren't Cheap - The Business Insider

Well, We've Officially Had A "Correction"... But Stocks Still Aren't Cheap - The Business Insider

Stocks are now down more than 10% from their recent peak--an official "correction."

So what does that mean?

Is it a "buying opportunity"? Are stocks cheap?

Not necessarily.

Over the short-term, the market could certainly snap back. And if the carnage keeps up,  Ben Bernanke might announce some huge new quantitative easing program in addition to his zero-percent-interest-rates-forever policy. Or Congress might panic about the elections and suddenly address "Taxmageddon" and the fiscal cliff. Or Europe might suddenly bail out all its banks and kick the can down the road for a while.

And those initiatives might boost stocks.

On the other hand, stocks could now keep dropping until they enter a "bear market" (20% decline), or worse.

On that score, the bigger valuation picture is still not that encouraging, at least for long-term returns. Even after the recent pullback, stocks are still about 20% overvalued when measured on Professor Robert Shiller's "normalized" earnings--earnings adjusted to normalize profit margins. This is is one of the only valuation measures that actually bears some correlation to long-term future returns. (PEs based on a single year of earnings can often be highly misleading).

Specifically, even after the pullback, stocks are still trading at 20X cyclically adjusted earnings. As we can see in the following chart from Professor Shiller, over the past century, stocks have averaged about 16X those earnings. So we're still about 20% above "normal."

Importantly, though, 20X is a lot closer to normal than the ~24X recent peak. Stocks certainly aren't "cheap," but they're also not wildly overvalued anymore.

Wait, what are "normalized" earnings?  Aren't stocks now astoundingly "cheap"?

In recent months, eager to suggest that stocks are cheap, most analysts have talked about the market P/E ratio relative to next year's projected earnings. And relative to those earnings, stocks do seem modestly "cheap" (12X, or something).

Unfortunately, measuring stock values against next year's projected earnings has a couple of flaws. First, no one knows whether those projections will materialize. Second, and more important, those projected earnings assume that today's record-high profit margins (see below) will persist. 

St. Louis Fed

Corporate profit margins have now hit record highs. If they don't regress to the mean, it will be the first time in history that they haven't.

Over history, corporate profit margins have been one of the most reliably "mean-reverting" metrics in the economy. When margins get extended to super-high (today) or super low (2009) levels, they generally revert toward the mean. This radically changes the PE ratio.

Using single-year earnings often provides a very misleading impression of how "cheap" or "expensive" stocks are. When profit margins are abnormally high, as they are now, the PE seems misleadingly low. And when profit margins are abnormally low, as they were in 2009, the PE seems misleadingly high. The "normalized" PE ratio provides a much more meaningful view.

And measured on average profit margins, not today's super-high margins, the stock market is still a bit expensive. (We discuss this in detail here).

Sadly, this doesn't tell you anything about what the market will do next.  As you can see in Professor Shiller's chart, the market has spent decades above and below the average.

What this PE ratio does tell you is that stocks still have lots of room to fall--20%, just to get back to normal, much more than that if they "overshoot."

And it also tells you that long-term returns are still likely to be sub-par. Through history, one of the most reliable predictors of next-10-year returns is the valuation level at the beginning of the period. Today's valuation level is not as high as yesterday's. But it's still higher than average.

But we're getting closer to "fair value."  And that's good news for long-term investors who want a compelling long-term return. And bonds are now so expensive that stocks are highly likely to produce better returns than bonds over the next decade, even if the stock returns are sub-par.

See Also: ALBERT EDWARDS: The Stock Market Will Collapse To New Lows And All Hope Will Be Crushed

Asian Stocks Drop as Jobs Report Adds to Global Growth Concern - thejakartaglobe.com

Asian stocks fell after a US payrolls report showed fewer jobs were added to the world’s largest economy than the most pessimistic forecast, adding to concern the global economy is slowing. Japan’s Topix Index is headed for its lowest closing level since 1983.    

Sony, a Japanese exporter of consumer electronics that gets about one fifth of its sales in the US, fell 1.5 percent. BHP Billiton, the world’s biggest mining company, dropped 1.9 percent as metals prices declined. Those of Woodside Petroleum, Australia’s second-largest oil producer, sank 2.2 percent as crude extended last week’s slump.    

The MSCI Asia-Pacific Index dropped 1.4 percent to 109.83 as of 9:53 a.m. in Tokyo. The gauge tumbled 10 percent in May, the biggest monthly loss since October 2008, when global markets tumbled in the wake of the collapse of Lehman Brother Holdings Equities continued declines into June as the US jobs report added to concern global growth is slowing and Europe’s debt crisis is worsening.    

“The poor US payrolls number should start to deflate investor optimism about U.S. growth that we’ve encountered, leaving few places for investors to hide,” said Gerard Minack, global developed-market strategist at Morgan Stanley in Sydney.    

Japan’s Topix fell 2.1 percent, below the lowest level seen during the 2008-2009 financial crisis and headed for its lowest close since December 1983. The gauge has fallen more than 20 percent from this year’s high on March 27, entering a so-called bear market. The Nikkei 225 Stock Average dropped 2 percent.                         

US Payrolls    

In Seoul, the Kospi index dropped 2.3 percent and Australia’s S&P/ASX 200 Index slid 1.6 percent.    

Futures on the Standard & Poor’s 500 Index lost 0.7 percent today. The index slumped 2.5 percent in New York on June 1 and the Dow Jones Industrial Average erased its 2012 gains after the jobs report.    
US payrolls climbed by 69,000 last month and the jobless rate rose to 8.2 percent. The Institute for Supply Management’s factory index fell after reaching a 10-month high.    

China’s non-manufacturing industries expanded at the slowest pace in more than a year as export orders declined and weakness in real estate countered strength in retailing and leasing, an official survey indicated.    

The purchasing managers’ index fell to 55.2 in May from 56.1 in April, the National Bureau of Statistics and China Federation of Logistics and Purchasing said in statements yesterday in Beijing. That’s the lowest reading since March 2011 when the federation started seasonally adjusting the data.    

The Bloomberg China-US Equity Index of the most-traded Chinese companies in the U.S. tumbled 3.4 percent to 87.22 on June 1 in New York, the biggest slump since Nov. 21.   

 The London Metal Exchange Index of prices for six industrial metals including copper and aluminum dropped 0.8 percent on June 1 and the Thomson Reuters/Jefferies CRB Index of raw materials slumped 1.7 percent.    

Oil for July delivery opened 0.3 percent lower in electronic trading on the New York Mercantile Exchange after falling 8.4 percent last week to the lowest in eight months.


Careful... you are what you eat! Gemma Collins stocks up 'Bimbo' bread during Marbella midnight snack stop - Daily Mail

By Sarah Bull


Most of us have all fallen victim to that late night attack of the munchies after an evening out.

Gemma Collins was snapped stocking up on snacks at a petrol station in Marbella last night after partying with her co-stars.

The reality star was pictured buying water, crisps, dip, and - somewhat comically - 'Bimbo' bread.

Midnight snack? Gemma Collins stocks up on snacks at a Marbella petrol station, including 'Bimbo' bread

Midnight snack? Gemma Collins stocks up on snacks at a Marbella petrol station, including 'Bimbo' bread

Given the less-than-flattering perception happily encouraged by TOWIE producers about the cast's intellect, it makes for an amusing picture.

Earlier in the evening, Gemma had caught up with her co-stars at a restaurant near the town port, including her recent love interest Arg.

The pair were seen grinning from ear-to-ear as they headed back to their hotels following an evening of drinks.

Snack attack: The reality star was seen heading into a petrol station after enjoying a night out with her co-stars

'She looks so beautiful!' James 'Arg' Argent and Gemma Collins cuddled up as they enjoyed drinks in Marbella last night

'She looks so beautiful!' James 'Arg' Argent and Gemma cuddled up as they enjoyed drinks in Marbella last night

And earlier in the night Arg had even taken to his Twitter page to comment on how stunning Gemma was looking in her white dress and matching sandals.

He tweeted: 'Look who has just come to meet me for drinks! @missgemcollins an how beautiful does she look! #Marbs.'

Gemma later wrote: 'Having fun down the port xx' before adding: 'I just came to say hello xxx'

More than just friends: The pair looked very close as they called it a night after enjoying time together at the port and later at Pangea nightclub

More than just friends: The pair looked very close as they called it a night after enjoying time together at the port and later at Pangea nightclub

While the pair have yet to comment on the official status of their relationship, they appeared to be more than just friends as they called it an evening.

Despite not actually holding hands, Gemma and Arg looked very close as they strolled along, smiling widely for waiting photographers.

The budding romance between Arg and Gemma has been brewing for some time but their secret tryst was not revealed until an episode of TOWIE last week.

Drink up! Arg looked surprised as he spotted the photographers

Drink up! Arg looked surprised as he spotted the photographers

Give us a hug! The pair looked delighted to see each other at the bar and restaurant

Arg, 24, had kept quiet about his relations with Gemma, 31, but confided in his best friends Joey Essex and James 'Diags' Bennewith at the Jubilee themed party, admitting the pair had got close during a stint at boot camp in Marbella.

Unsure about his feelings when Joey asked if he thought anything more would become of their friendship, Arg said, 'There is chemistry... basically she’s a pretty girl in the face, but we’ve both got pretty bad metabolisms.'

He then quipped, 'But when I've had a few drinks it could happen.'

Arm in arm: The TOWIE crew, including Billie Faiers (far left) appeared in good spirits on the night outseen grinning

Arm in arm: The TOWIE crew, including Billie Faiers (far left) appeared in good spirits on the night out

Gemma was later seen following Arg out of the party to confess her feelings to him. Concealing her curves in a conservative blue dress, the former car saleswoman said: 'I love you Arg'.

He replied: 'I think you’re amazing... you have a big bubbly personality like me', before the pair shared a delicate kiss.

Here's what other readers have said. Why not add your thoughts, or debate this issue live on our message boards.

The comments below have not been moderated.

She seems to be getting bigger by they day....be careful it's not good for you at all Gemma!!

Gemma isn't skinny, neither am I and neither are the majority of the human race, she seems to shrug it off and be flippant about the negativity but shes only human and has feelings so leave her alone!! #TEAMTOWIE!

"He then quipped, 'But when I've had a few drinks it could happen." Jeez more like a few dozen drinks to hook up with that.

Two thoroughly horrid individuals! - Enough, London, 03/6/2012 21:09 VERY well put!! I thought Arg was getting in shape and exercising bahaha he's always out or on holiday - the ugly greaseball's a joke and Gemma lol - god how can she bare to leave the house, she's a beast disgusting self centred, self serving deluded people!

Oh, the irony!


This is news? "Woman buys bread"

Why is she using a Missoni paper bag as a handbag?!

Some of the people are discussing on here! Yes clearly she has a weight problem but at least she admits it! If someone like your sister or mother was a little large you wouldn't say it to them! No wonder so many girls have dieting problems, and think its acceptable to be a size 0, it's because people think there's something wrong with a person if they have a little fat on them! By the way, I'm a size 12 and proud!

There is no need for all those horrible comments just cause she is 'larger' than the average women!

The views expressed in the contents above are those of our users and do not necessarily reflect the views of MailOnline.

Stocks higher on hopes for China stimulus - Yahoo Finance

NEW YORK (AP) -- Stocks jumped Tuesday, one of their best days in an otherwise dreary month, after China appeared poised to rev up its economic growth machine.

Industrial stocks that depend heavily on the Chinese economy, like Caterpillar and Alcoa, rose sharply, bringing the Dow Jones industrial average up 76 points to 12,532 in midday trading. China is the largest market for aluminum, which Alcoa makes, and Caterpillar recently said it is aggressively courting China to sell its construction equipment.

If the Dow finishes higher it will be only its fourth gain this month. The Dow is still down 5 percent for May and is headed for its first monthly loss since September. The increasing likelihood that Greece will drop out of the euro currency and a worsening of Spain's financial condition have been the main culprits behind the decline.

Facebook plunged 7 percent to just under $30. The stock has been hammered since going public a little more than a week ago at $38. The glitch-plagued IPO has drawn scrutiny from regulators and ire from disgruntled investors who had trouble executing trades.

The Standard & Poor's 500 index rose 7 points to 1,324 and the Nasdaq composite rose 10 points to 2,847.

U.S. markets were closed Monday for Memorial Day.

American investors were also reacting for the first time to news from Greece Monday that a party in favor of abiding by the terms of the country's financial rescue could win in national elections next month. That could avoid a catastrophic rift with Greece's international creditors and keep the struggling country within the euro zone.

"News from China and Greece is alleviating concerns that have been dogging the market for some time," said Robert Pavlik, chief market strategist at investment advisors Banyan Partners. "While Europe will be in trouble for some time, which will reverberate across global markets, for the time being the pressure has been lifted."

Investors were also heartened with some positive news from the beleaguered U.S. housing market. The Standard & Poor's/Case-Shiller report on home prices found that prices increased in 12 of the 20 cities it tracks. The increase in March from the month before was the first in seven months. It was the latest evidence of a slow recovery taking shape in the troubled housing market.

In Europe, concerns that Spain's ailing banking sector might worsen the European debt crisis sent the Spanish stock market to nine-year lows. Other European markets rose.

Spain's banks are sitting on huge amounts of soured investments in the country's imploded real estate market. That has led to the recent nationalization of Bankia, the country's fourth-largest lender. Bankia revealed last week that it needs far more money in state aid than previously expected, $23.8 billion.

Madrid's Ibex index fell 2.3 percent. Bankia dropped another 13.6 percent. The yield on the benchmark 10-year government bonds, a key gauge of investor confidence in the country's ability to avoid bankruptcy, was slightly lower at 6.41 percent. The rate is perilously close to the 7 percent rate, which is widely seen as too high for a country to afford over the long term.

Oil prices were up one percent to $91.81. Crude has dropped from $106 four weeks ago amid signs of slowing global growth and optimism that a military conflict over Iran's nuclear capabilities could be avoided.

Energy companies were also gaining on expectations that China will need more energy to fuel its growth. Peabody Energy and Chesapeake Energy shot up 5 percent, and Consol Energy gained 4 percent.

Other stocks that were making big moves:

— Interline Brands shot up 40 percent after the maintenance company said it is being acquired by a pair of private equity groups for about $811 million.

— Patriot Coal rose 3 percent after the company said its CEO is leaving the company. Last week Patriot announced that it is working with private equity firm The Blackstone Group after there were concerns that the mining company could run short on cash.

— ConocoPhillips rose 3 percent after a Citi analyst said the company is likely to pay hefty dividends this year thanks to asset sales that generated higher returns than analysts expected.

UPDATE 1-US STOCKS-Futures dip after Friday's big selloff - Reuters UK

Mon Jun 4, 2012 3:16am BST

* Futures down: S&P off 0.76 pt, Nasdaq 0.75 pct (Updates prices)

June 3 (Reuters) - U.S. stock index futures slid on Sunday in electronic trading after Friday's selloff, the biggest percentage drop for the year for stocks, as worries over the deepening euro zone debt crisis threaten to extend recent market weakness.

S&P 500 futures fell 9.7 points, or 0.76 percent, to 1,264.20, pointing to a dip at the open on Monday morning, and Nasdaq 100 futures lost 18.50 points, or 0.75 percent, to 2,436.50.

U.S. stocks fell more than 2 percent on Friday, dragging the Dow into negative territory for the year after a dismal U.S. jobs report added to fears that Europe's spiraling debt crisis was dragging down the world economy.

Futures were headed lower in tandem with selloffs in Asia, where Japan's Nikkei 225 Index index was down 2 percent and Hong Kong's Hang Seng fell 2.4 percent.

The debt crisis and subsequent austerity measures have severely curtailed growth in the euro zone, with large economies including Spain and Italy struggling to reduce their debt load while instituting big structural changes in their economies.

"The sentiment backdrop continues to grow more pessimistic and remains consistent with negativity seen at major bottoms during corrective pullbacks the last few years. Hedge funds are no longer showing interest in stocks," said Todd Salamone, director of research for Schaeffer's Investment Research in Cincinnati.

Germany, the euro zone's largest economy, is pushing its partners for a central authority to manage euro area finances, and major new powers for the European Commission, European Parliament and European Court of Justice. Until then it does not want to agree to euro-zone bonds that would lower the cost of funding for already indebted nations. (Reporting by David Gaffen; Editing by Jan Paschal and Richard Pullin)

No comments: