stock crash, earnings

Attached chart shows the p/e ratio is fairly high by historical standards, but not as high as some recent bubbles. The huge recent spike is when corporate earnings plunged to near zero. Hopefully that will not happen again.

The question is what is going to happen to earnings? Are earnings going to grow? If earnings are growing then a high p/e maybe is justified. Corporate profits have doubled in the past decade ln(2)/10=0.069 or about 7% per year even though USA had a big recession.

Companies are selling lots of products in the USA and abroad. They may make a lot of money off that activity. The rich are getting richer and they own the companies. The companies are getting bigger and more oligarchic (American Airlines just merged with US Airways today) so they will be able to charge higher prices and make more profits. But 7% per year maybe will not happen. The economy may even crash again.

I would not be a buyer of stocks today after the recent run-up. I thought in 2001 and 2008 that stocks were a great value, but not today.

Bonds, Gold, Silver in a bubble too, probably worse than stocks. Eventually taper will happen and clobber bonds, stocks, and other assets. Then higher interest rates may then clobber the economy and worsen the crash.

Smart money moved into houses. People will pay rent. If they don’t have money the government pays rent for them. I went to some astonishing auctions this summer. Low end rentals can be profitable.

Student loans may be profitable too as the students can’t shed that kind of debt.

Subprime auto loans may be profitable too as the idiots can’t figure out how much a car is costing them. Many love their cars — more than houses and education and farms.

Junk food companies will do well in a recession because of junk food stamps.

Extending unemployment benefits will help a lot of low end products like rental houses, junk cars, junk foods, etc.

Often junk is not corporate profits. Just some rich guy or not so rich guy buys some junk houses and rents them out.

Junk cars even easier to deal with, especially if have underworld contacts for stolen parts.

Of course drugs do well recession or no recession. Obama Holder wants to reduce penalties and let druggists out of jail. If people spend money on drugs then they will not be able to buy so many corporate products — rich people will suffer. So republicans are against drugs.

I read research long ago that people smoke and drink more in depressions and recessions. Probably use more drugs too.

Maybe buy alcohol tobacco drug paraphernalia stocks if a recession looks imminent.

Yeah, I think the next bust will come from the stock market. It is hard to justify 20 times earnings in today’s environment.


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