1/3/14…give me a ‘P’, give me an ‘E’, that spells P/E: are they too high?

Quote of the Day from the Friars Club Encyclopedia of Jokes: “I used up all my sick days, so I’m calling in dead.” – unattributed

Bloomberg Quote of the Day: “The best ideas are common property.” – Seneca – ergo they already exist??? TB

Bloomberg Top Stories:

*Gross’s Wrong Call on Fed Taper Echoes Across Pimco as Largest Funds Trail – if TB hears him called the ‘Bond King’ one more time he is going to get sick! Fall from grace!

*Emerging-Market Stocks Retreat With Metals While European Shares Rebound

*House Prices Soar With U.K. Mortgages in Best Year for Property Since 2006

*Manhattan Apartment Sales Jump to Year-End Record as Buyers Rush for Deals – see only in New York do you ‘sell’ an apartment…elsewhere you ‘rent’ one! Ok, condos!

*CLO Rebound Falls Short of 2007 Record as U.S. Regulations to Raise Costs

*Brevan Howard Hires Former Goldman Sachs Trader for Its Hong Kong Office

*Goldman Sachs Boosted Average 2013 Pay for Top U.K. Bankers as Rival’s Cut – LOL

*BofA to Citigroup Bullish on Real (Re-al) Bonds After Rout in 2013 – Brazil that is!

*MIT Economist Finkelstein Ferrets Out Facts on Costs in Health-Care Debate – do tell!

*Marchionne Completes Fiat-Chrysler Combination Mission on a Florida Beach – Fiat stock rose 16.4% yesterday!!! 6.95 Euros ($9.49)

*Al–Qaeda Allies Threaten to Take Iraq Towns That Were Focus of U.S. Surge – ugh!

*Snowstorm in U.S. Northeast Closes Highways, Forces Flight Cancellations

*U.K. Warned of Severe Floods With Strong Winds in Western Areas of Country

Thursday’s Market Summary:

Note: see commentary below for data on indices and key stocks for p/e’s etc.

…this could be a January to remember…or regret! Favorite Dow Transports plunged 1.5%, Dow Utilities -1.6%, Russell 2000 small cap -1.1%. The rest? Off 0.8-0.9%. Oh, and NYSE Financials fell by 1%.

NYSE Volume you ask? Not high but at 3.06B shares beat every day since options expiry with 3.06B shares. Real NYSE Volume rose to 624M shares, also highest since 12/20! So? SO IT WAS A DOWN DAY…the trend continues and it ain’t your friend!

Breadth and Advance/Declines were negative on both NYSE and Nasdaq. The VIX, rose for a third straight session and that is the most important metric now! Puts are in the air!

The Nasdaq 100 LOST 28 points (6 from Apple and 10.5 from the next 6 members), vs +22 (5 from Apple and 12 from the next 8 members). Breadth was negative 6:1 vs +3:1. This was much more broadbased. Seven members lost more than an index point, while just two gain more than a point: APPL -6.4! vs +5.3! vs -2.6 vs -3 vs -2; CSCO -2.1 vs +1; MSFT -2 vs +1; GOOG -1.9 vs +2.8 vs -2.2; QCOM -1.4 vs +1; EBAY -1.1; CMCSA -1; AMGN +1.1 vs -0.9; CELG -1

Dow 30 -0.8% vs +0.4% vs +0.2% vs – vs +0.8%; Dow Transports -1.5%! vs +0.7% vs — vs -0.2% vs +0.3%; Russell 2000 -1.1%! vs +0.3% vs – vs -0.1% vs +0.1%; Dow Utilities -1.6%! vs +0.3% vs +0.3% vs +0.2% vs -0.4%; S&P 500 -0.9% vs +0.4% vs – vs – vs +0.5%; Nasdaq Composite -0.8% vs +0.5% vs -0.1% vs -0.3% vs +0.3%; NDQ 100 -0.8% vs +0.6% vs -0.1% vs -0.3% vs +0.3%.

*NYSE Volume rose to 3.06B shares vs 2.3B vs 2.27B vs 2.04B vs 1.97B; vs 1.3B. The record high (?) is the 4.97B shares of 12/20/13 and Q3 end of quarter while 11/29’s 1.59B is weakest of 2013). REAL NYSE Volume also up but remains below average at 624M shares vs 568M vs 462M vs 424M vs 421M, from the new 12-month low of 272M. The average since 12/20 is just 462M shares with a high of 611! The 12 month is only 720M shares. Last year there were just TEN 1B+ share sessions! There were 39 800M+ shares in 2013: 18 up, 19 down, three mixed.

*New 52 week highs have ranged from 33-864. They were halved to 201! vs 560 vs 346 vs 445 vs 659. Recent high is a super-strong 890!!! New lows little also halved to 43 vs 78 vs 72 vs 76 vs  60 vs 44 vs 68 vs 81 vs 127 vs 131. Recent high is 353; low is 35!  

  1. Advance/Declines were negative: -2x vs +1.9x vs -1.1x vs +1.1x vs +1.2x (recent range -17.5x to +6x) on NYSE and -1.8x vs +1.4x vs -1.1x vs -1.1x vs +1.1x (recent -4x!!! to +3.8x). Breadth was similar: -2.1x vs +2.8x vs -1.1x vs +1.6x vs +2x (recent -18.6x!!! to +7.2x!!!) on NYSE and -1.4x vs +2.1x vs -1.1x vs -1.4x vs +1.2x (recent -12.8x to +6.5x).  
  2. NYSE Financials (just six members: BAC/C up, GS -2.2% from new 12-mo high) plunged 1% vs +0.4% vs +0.1% vs +0.1% vs +0.3%. BofA most active: +3.4%??? vs +0.2% vs -0.8% vs +0.1% vs -0.3%, closing at $16.10 +.53 – a new 12-month high!…taking out 11/25’s 12-month high of $15.98, highest since 6/1/10. Brokers -0.4%??? vs +1.2%! vs -0.2% vs -0.4% vs +0.5% vs -0.3%; KBW Banks -0.5% vs -0.5% vs +0.4% vs –0.2% vs -0.1%; Nasdaq Banks -1.3%!!! vs +0.1% vs -0.4% vs -0.2% vs -0.1%.
  3. Volatility (S&P VIX) rose for a third day and is well above the 40/50 day and now the 200 day! Caution! The range was 14.00-14.59!!! Last Thursday’s 11.69 was lowest since 3/15/13!!! High for prior week was 16.67! The recent range is 11.83-21.01!!! It peaked at 22.79 on 12/28/12…ytd the range is 11.05 (3/14) to 21.92 (6/24)!

Bonds overcame Tuesday’s plunge and rose gaining back most of the loss bu remain week: 30 yr closed at 3.92 +13/16 – from 3.97% – too close to 4%, while the 10 yr closed at 2.99% +5/16 vs 3.03%! Long TIP closed 1.56% +1-5/16 vs 1.62%. Overnight weaker on the long end: 10yr 3.00% -1/8 (recent range 1.63% to 3.03%), and the30 yr 3.94% -3/8 (recent range 2.67% to 3.97%). The long TIP is 1.58% -5/16. The (record?) low of 0.36% was set on 4/5. The recent high yield: 1.64%! Libor update: 0.240% 3 mos,0.345% 6 mos. (slight new record lows!). Foreign bond yields mixed with problem countries better for a 2nd day! Germany 1.95% +1; UK 3.03% +1; France 2.56% –; Italy 3.95% -2; Spain 3.89%!!! -8!; Portugal 5.60%!!! -17; Greece 8.01% -3 vs -8 vs -2 vs -4 vs +15!!! vs -16 vs -11 vs -3 vs -11! Recently: 7.71% – 12.57%. Japan …0.73% –. Yen bouncing off multi-year low…105.44…weakest since 10/1/08!!! Currently 104.50!

Gold celebrated the new year with a rally to $1230.80, held most of the gain closing at $1225.20 +$12.20! This from Tuesday’s low of $1181.40 – A MULTI-DECADE LOW!!!  Recent high is $1375.40 back on 9/19. $1200 is sup/res, and $1300, psychological resistance with major res at the 40 day ($1245!) and the 50 day ($1264!) and falling! The 200 day is $1350. Overnight it is higher and is now $1229.80 +$4.60 with a high of $1238.30…dawning of a new bull market???

Crude pummeled again – down for the count? Closed at $95.44 -$2.98 – lowest since 12/2!!! Note the session low of $95.34, lowest since 12/3! Note 12/27 was first time above $100 since 10/21!. On 11/27 it printed a new low of $91.77, lowest since 6/3!!! The record high of $114.83 was on 5/2/11, the low since on 10/4/11 is $74.95: $93.60 is the midpoint!!! Recent rally high and close are $110.70 and $110.53 respectively. It is now below the three key m/a’s which are now major res: 40 day m/a ($96.37), 50 day (96.50), and the 200 day is $99.03 – all rising and major resistance! 4/18’s low of $85.61 was lowest since 12/11! The recent range is $85.61-$112.24 since March 1, 2012. Overnight it is weaker at $95.22 -.22 with a session low of $97.13, lowest since 12/3!

Overnight markets:

European equity markets higher, Asia weaker, Japan still closed – three days!!! How do they do that?: UK +0.3% vs -0.1% vs +0.3% vs -0.4% vs closed; France +0.7% vs -0.8% vs +0.5% vs -0.1% vs closed; Germany +0.5% vs -0.4% vs closed vs -0.4% vs closed; Japan still closed vs +0.7% vs – vs +1%; Hang Seng -2.2%!!! vs +0.1% vs +0.3% vs – vs +0.3%; Korea-1.1%! vs-2.2%!!! vs closed vs +0.5% vs +0.2%; India -0.2% vs -1.2%! vs +0.1% vs -0.2% vs +0.6%. U.S. stock futures modestly higher: DOW +25 (range 68); SPX +3 (11); NDQ 1.75 (20).

Some random thoughts:

Yesterday we addressed returns for 2013 and five years with the caveat that since the stock market continued its 2008 plunge until 3/6/09, returns are deceiving. Remember that a 40% decline requires a 60% rebound just to break even!

Today, we tackle p/e’s. Why? Because many remain bullish but consider that REVENUE growth has been sluggish with the earnings gains coming from ‘cost-cutting’! Therefore if the p/e’s are high one has to question sustainability right? …and markets don’t rise unless that exists…not in the long run! TB wants to call your attention to a site he has watched for several years: www.crestmontresearch.com. He first learned of this from John Mauldin’s commentaries which he doesn’t find of much use any more except for his ‘Outside the Box’ missives that are commentaries from others he finds of interest. Crestmont’s leadere is Ed Easterling who has written some great books on returns. Check out the website especially his stock index matrix which shows you the returns between any two years for over 100 years. These can be viewed as nominal, tax-free, or fully-taxed. If you take the link to FedEx you can print it in color on 11×17 paper…suitable for framing…and to keep your head straight.

TB went back to the site after a friend wrote and said he fully expects the rally to continue especially for ‘bricks and mortar’ stocks. TB is doubtful. So he began assembling data on some major indices and key stocks. Here is the table:


2013 return



Dates L/H

12/31 P/E

14 Est. P/E

Dow Industrials




1/3 – 12/31



Dow Transports




1/3 – 12/31



Dow Utilities




1/9 – 4/13



S&P 500




1/8 – 12/31



Nasdaq Composite




1/8 – 12/31



Nasdaq 100







Russell 2000 Sm. Cap




1/3 – 12/26



NYSE Financials




1/3 – 12/31




Apple APPL


 $  391.00  $  570.00 4/19 – 12/23



Berkshire BRK/A


 $139,278  $178,900

1/3 – 7/22





 $    10.98  $    16.16 2/25-1/2/14



Goldman Sachs GS


 $  129.62  $  178.38 1/3 – 1/2/14



JPMorgan JPM


 $    44.20  $    58.55 1/2 – 12/31



Citicorp C


 $    40.28  $    53.68 2/6 – 11/25



Apple was included because it was a major part of S&P 500 and NDQ 100 performance in 2012 – additive! Berkshire because if you asked Buffett if he would buy the stock here he would say no way…if he didn’t he would have been slapped upside the head by his mentors Graham and Dodd for stupidity! As for the bank stocks…look at the returns which have come largely from wider spreads, earnings from the Fed on ‘excess reserves’ at 0.25% while paying depositors nothing, and recapture of loan loss reserves due to improved chance of repayment.

As for those P/E’s if you use either Schiller’s (10 year average), or Crestmont’s (inflation adjusted) – which by the way come very close, all would be over 25x!!! Value?

Crestmont’s tables indicate if you want double digit returns you need to invest below an 11x p/e. If above, over a 20 year period you lose money. That is in a cyclical market where the ‘bear’ is much shorter. In a ‘cyclical’ caused by a financial crisis the recovery time is an average eight years! Better recheck your returns since 2000…annualized!

It doesn’t matter where you think the market is headed or where TB thinks it is headed: it has a mind of its own and in a sluggish economy, with no wage growth except at the top (which is distorting gains), the lowest labor participation rate since the Great Depression, do you believe stocks are not due for a major correction? Shiller, Easterling, and others do…but you can also be in the camp with Jeremy Siegel…just remember he was wrong in 2000 along with Abby Joseph Cohen, who rode them all the way down…or at least her devotees did!

Also, note that CEO’s love this and have done their part to drive their stocks higher…as it serves them best. Do not deceive yourself that they are doing it for the benefit of stockholders…what are the percentages in that? Especially when you are earning 400 time your own median employee! All he has to do is do his time and get on the billionaires list, right? Right, Mr. Dimon? How about the 4th richest woman in America, Meg Whitman whose H-P salary was just raised 50% to $1.5 million – for competitive reasons! Since here arrival in Sept. 2009, the stock has had a return of just 6.7%. Most of what she has ‘accomplished’ is due to cost-cutting, yet they still have a fleet of corporate jets at the beck and call of directors for their own pleasure?

To paraphrase Ivan Boesky: it is never enough money…money is a counter and you want to have more than anyone else…that is how you are measured.  Ta-ta, suckers!

The Fed did what it had to do…nobody else in government even tried to stimulate the economy. But what did the succeed in doing: inflating stock values which in turn widened the wealth gap to levels not seen since the 1930’s while the rest of the economy remains precariously close to de-flation! In that environment neither fiscal or monetary policy has any effect…but, hey…and war can inflate us out of it, right? Are you in? or out?

Hope you have a great weekend…we are getting an arctic freeze in Minnesota…brrr.



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