Not that I’m surprised by the FEAR based COWARDS calling for stock market bubbles, and their continued attacks, I did a little research on my own. Since the markets are forward looking and not jailed by FEAR, we can continue to rally based on the forward looking P/E ratio for the S&P 500. According to the estimates in the article below, we are not grossly overvalued as some are shouting. I’m calling for the S&P 500 earnings for 2010 at $60. Based on that and a mean P/E ratio of 15, you get a value for the S&P 500 at 900. I would hardly call 1046 bubble territory. Moreover, the P/E ratio fails to account for cash or cashflow.

Worth mentioning here are the cash hoards on the balance sheets for these companies.
The following excerpt from the attached Bloomberg article. “Cash relative to share prices will climb to the highest in at least two decades next year compared with yields on corporate bonds, the data show. The previous high in 2005 proceeded the two busiest years ever for takeovers.”


Never before, have I heard Buffett was buying in a market characterized by a bubble. I believe we will see commonplace M&A activity at lower levels around the 1 billion dollar range. As the banks continue to practice risk aversion, cash for growth will not be easily had; therefore, companies will seek M&A from larger cash rich competitors to fund expansion. This also leads to increased profit margins as fewer competitors and increased barriers to entry thin the markets.

In many respects, I have never been more bullish on the markets. Ridiculous pay, board ineptitude, and government agency failures have or are being addressed. Productivity will be extremely high in 2010. As we move out of calamity, we will see steady improvement in earnings and cashflows. The employment picture will improve gradually and perhaps the lessons learned might prevent a new consumer credit bubble from forming.

As usual, just one lame ass opinion.

Jay


http://www.dailymarkets.com/stocks/2009/...

http://www.bloomberg.com/apps/news?pid=2...