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Top 72. Nov 13, 2001 10:07 AM

» smile_1 - S&P valuation in relation to 10 year treasury

A few weeks back I pulled the bottoms up earnings estimate for 2001 = 43.01.

based on this I used 4% & 8% incremental growth in earnings to get fair value of S&P using 10yr treasury model.

input data:

S&P 2001 bottoms up estimate = 43.1

S&P 2002 earnings if growth is 4% = 44.82

S&P 2002 earnings if growth is 8% = 46.55

10 yr treasury @ 4.37%

using earnings growth % of 4% & 8% for 2002:

The results were as follows:

4% incremental earnings growth = 1025.72 S&P

8% incremental earnings growth = 1065.17 S&P

what's wrong with this picture:

1) well for starters the new target for 2001 bottoms up earnings = 41.02 not 43.01. shocker (going the wrong direction)

2) new targets using 41.02 are:

976.22 for 4% earnings growth

1013.77 for 8% earnings growth

not a pretty picture if estimates come true.

Cliggott seems to be the lone voice in the wind at this point. Hope he is wrong.

-- posted by smile_1

Top 73. Nov 13, 2001 7:00 PM

» Happy - Re: S&P valuation in relation to 10 year treasury

In response to message posted by smile_1:
Using earnings in a recession to compute P/E's is always going to show high valuations at the end of a bear market.

-- posted by Happy

Top 74. Nov 13, 2001 7:30 PM

» lcha - Re: Re: S&P valuation in relation to 10 year treasury

In response to message posted by Happy:

Using earnings in a recession to compute P/E's is always going to show high valuations at the end of a bear market.

I don't believe that is an accurate statement although it seems to be a popular "wives tale".

The last secular bear market ended in 1982. What was the p/e of the S&P then? I think it was about 8 or so. And that is based on REAL earnings, not the fake ones that get used nowadays.

-- posted by lcha

Top 75. Nov 13, 2001 8:38 PM

» smile_1 - Re: S&P valuation in relation to 10 year treasury

In response to message posted by Happy:

not what I did.

I adjusted 2001 earnings using a reasonable growth rate.

Put your own growth rate on it. I used 4% & 8% growth over 2001.

Whadya think maybe 20% growth over 2001 bottoms up earnings of 41.02? takes you to 49.22 earnings

using 4.37% 10yr treasury yield....

still puts ya at 1126.41 (49.22/.0437)

looks like market is building in exuberance of positive war end, fed monetary policy, fiscal stimulus, no inflation, and end to economic slump.

nothing wrong with that just be aware that is where we are.

-- posted by smile_1

Top 76. Nov 13, 2001 8:55 PM

» Happy - Re: Re: S&P valuation in relation to 10 year treasury

In response to message posted by smile_1:

At spglobal.com I see the following:

Bottom Up:
Year 2002 operating earnings estimate was $54.68 P/E 20.5
Year 2001 operating earnings estimate was $41.02, P/E 25.8
This is a 33% increase in bottom up operating earnings estimate for 2002 over 2001. Here is hoping they are right.

-- posted by Happy

Top 77. Nov 14, 2001 5:41 AM

» lcha - Re: Re: Re: S&P valuation in relation to 10 year treasury

In response to message posted by Happy:

If you look at the earnings squiggles graphs at www.yardeni.com, you will see that, with few exceptions, forward earnings estimates are overly optimistic. Dr. Yardeni puts the year ahead excessive earnings exhuberence at about 10% on average.

The earnings graphs on all the S&P sectors are really great on Yardeni's site(as well as a wealth of other data).

-- posted by lcha

Top 78. Nov 14, 2001 6:55 AM

» Kirk - Re: Earnings estimates

In response to message posted by lcha:

As I said elsewhere, earnings estimates are well know to over estimate when the market is going up and under estimate when the market is going down. Analysts should be called Lemmings as they go in herds.

Just look at HWP... Analysts had them doing $9.9B revenue and they did $10.9B... not a small miss.

Excluding restructuring charges for work force reduction and other items, the company earned 19 cents a share. That's ahead of the forecast for earnings of 8 cents per share in a survey of analysts by Thomson Financial/First Call.

Missing by more than a factor of two?

Dr, Yardeni is good because he admits to his many mistakes. For example, he predicted a major collapse for the century date change and advised people go to cash in 1999. Of course, the NASDAQ rallied 50% as people spent a ton of money to have the technology to keep their businesses running with the date change. Since they moved their spending ahead a year or so, we got a bubble and then the following decline. Yardeni completely missed this and yet people still listen when he speaks proving that having a good story is more important than having any credibility.

BTW, I feel we are only now starting to have the inventory correction from all those computers being bought early. Computers bought in 1999 will be up for their 3 year cycle replacement in 2002....

-- posted by Kirk

Top 79. Nov 14, 2001 7:05 AM

» Rande - Re: Re: Earnings estimates

In response to message posted by Kirk:

Speaking of inventory correction, the telecom industry is projecting 4.5% - 11.2% growth in equipment spending in 2002. Have no idea how they can possibly come up with a range that takes things out to the third decimal point, but at least they're finally projecting some growth. Hard to find any sector as hard-hit as telecom over the last year-plus.

-- posted by Rande

Top 80. Nov 14, 2001 8:26 AM

» lcha - Re: Re: Earnings estimates

In response to message posted by Kirk:

For example, he predicted a major collapse for the century date change and advised people go to cash in 1999

Aside from the fact that I NEVER heard Yardeni suggest to go to 100% cash, was it really a bad call to go to cash in 1999? It may have been for the wrong reason but IMHO, the call was not bad at all, unless you advocate people chase the tail end of the biggest financial bubble in history.

Yardeni was given the "Best economist of the Decade" title for the 1990s by Barrons because of his BULLISHNESS from the late 1980s throughout the 1990s. As for his Y2K fears, several BILLION $$$ of tech spending showed he was not the only one with those fears. I followed Yardeni closely during that time and as 2000 approached, he became a LOT less fearful of a calamity but did still see market risk as the market was tremendously overvalued anyway.

Please, Kirk, if you can show me where Yardeni EVER suggested going to all cash, I would like you to present me with the evidence.

-- posted by lcha