An interesting look at the current market high found on yahoo finance: http://www.donharrold.net/videos/101906free.html Just a little heads up for ebullient LT "investors"
No offense, but all that historic chart tells me is that we're still above the historic PE norm. Don't be bullish just because the current PE ratio seems "reasonable" but do be bullish as you please if you can justify the current PE ratio in relation to the future growth rate. PE is one of the more malleable (or should I call it manipulable) ratios out there. One of the ways a company can embellish it is through stock buy back, just to give you a little hint.
I just wanted to note that the current geopolitical situation is nothing when compared to what has happened in the past. If you look at the things in the news in the last 100 years, the stuff that is shown today is seemingly mild. This market seems to overreact to any and all news. The American economy is strong and people are doing well. I know, I know what the data *suggests*. Believe me, these are still good times. No one is starving.
If you took out some 6 dow stocks, the market would be even for the year, I think. Also because the bigger/est companies are able to generate revenue abroad, we have to wait and see what will happen once the Euro taxes kick in, after the new year. That's only for the 10%, the other 90% will have to be sent into poverty first.
equities is hype lalaland anyway but... do u really think whole industry sectors across all of the G7+ economies could engineer stealth stock buy-backs to 'embellish' their PEs and ramp up their respective mkt indexes in concert?... all that for US mid-term elections?? like they'd all be supporting the bush admin? sorry, don't want to drag this into politics at all but just to say... doesn't sound v.likely to me... reason equities are taking off across the planet is, fears that the world wld enter a global depression in the wake of the internet bubble burst, 9/11, enron etc have now eased, geopolitical tensions are somewhat easing from a few months ago although that may well change if bush gets a majority but even then, who knows, the appetite for more wars just isn't there it seems... rates are back to more normal levels except for japan but they'll get there... in any case unlike the last 2-3 years further rate movements will be both mild and slow which is equity-supportive... and the consumer IS buying and corporates ARE making profits in case nobody'd noticed...
their already there but thats a different story... http://www.globalpolicy.org/socecon/inequal/2004/0615millionaires.htm some (somewhat dated) thought-provoking read fyi http://en.wikipedia.org/wiki/Edward_Luttwak http://books.google.com/books?id=G1...result&cd=3&q=wealth pyramid in the US&pgis=1
My contention has nothing to do with politics (no idea where that comes from on your part) but everything to do with cooking the books for the benefit of the insiders (so that they may sell their shares at artificially inflated levels). Back in March 2005 when I was studying the said topic for CFA level II, Yahoo happened to announce $3 bil stock buyback plan over the next few years. Many were bullish on the stock then, and argued that the company insiders have a bullish outlook, because share repurchase plan always means the company thinks its shares are cheap, right? I did some EPS calculation along with others I was studying with and concluded it would improve about a nickel to a dime per share per year depending on the time period of the repurchase plan. Let's say they made 50 cents per share in 2005 - that's over 10% PE ratio improvement just by playing with the denominator. No changes in company fundamentals, no changes in free cash flow, no changes in the growth outlook, but their PE ratio, which the general public happenes to pay the most attention to because it is so simple, looks better than ever, or at least better than it did back in the year 2000. So, given that the company itself is buying back shares, the shares must be going up, and the insiders must been buying since then, right? Maybe not: http://finance.yahoo.com/q/it?s=YHOO Yahoo is but the tip of an iceberg. Companies left and right are buying back their shares these days but what are the insiders doing? They are net sellers. They are pretty much transferring their shares to the company coffers, which are owned by the current shareholders but I don't suppose they are running any charities here. Because the capital market has a plethora of share buybacks, the growth in per share earnings of the overall market is being pushed up well above the growth in GDP as earnings are spread across fewer shares of stock. This is akin to changing the color of the stock certificate as to make it more marketable, a la Stock Operator. The bookkeepers merely found a new way to pump the stock up and everyone's is ganging up on it (and there's nothing "stealthy" about it, it is done out in the open but most people, even analysts that follow these stocks do not bother looking beyond the smoke screen, or don't bother letting the general public understand the mechanics behind it). Granted the US economy has shown incredible resilience (as CNBC cahoots like to say) in the past few years but this market is currently being driven up by hope, and no matter how much I flip through macro economic factors there is nothing concrete about the softlanding scenario. I may buy an individual stock that's hitting the 52 week high, and avoid a stock that's at the all time low, but I don't buy into the market that's hitting the all time high after a dozen consecutive double digit earnings growth along with historically high profit margin - I'd sell into it and buy when fear dominates and climactic selling is exhausted. The sun rises to the top at noon then sets, but usually the hottest part of the day is around 2-3 PM. I contend that the market is no different. Just my 2 cents.
Haven't bothered to read the whole thread. To the OP, there is no wealth effect from current rally since the majority of the average retail investors are not in it yet and are relatively uninterested to date. That may start to change after the upcoming elections. The wealth effect will take hold on the next leg if the general market stays intact with limited bad news and strong profits. The real estate downturn has yet to fully play itself out as well. There is a lot of real estate money that has yet to make its way back into the markets. Face it, there were a lot of people that trimmed their 401K contributions way back after the crash and started to tap into their home equity for real estate investments and improvements. As usual, the Average Schmo is in the wrong place at the wrong time. When the mob comes back into this market the professionals will be set and happy to steadily sell them their bloated and tired positions. Buy the fear and sell into the greed, trading 101.
starting point is, there is not a single company out there that doesn't do what you were describing... window-dressing, hyping etc for the benefit of insiders, majority shareholders etc is the norm in equity land, and has always been... i was referring to the "US mid-term elections" theory of mkt index manipulation (not single stock), which seems to be on most bears minds at the mo', but not attributing to you though... peace