Comstock Partners, Inc.July 01, 2010
Happy 4th of July Holiday Weekend
As usual we don't write comments on holiday week-ends and this won't be an exception. We will probably write a "special report" early next week that will deal with the constant arguments from the bulls as to how "inexpensive" this market is and why you must buy equities because of the "fantastic valuations". Maybe to prepare you for this "special comment", you should take a look at the section on our home page titled "Limbo, Limbo, How Low Can it Go?" There you will find many different metrics that show historical valuations and where the stock market sold at the peaks and troughs over many years. All of these charts were produced by Ned Davis Research which we consider the best data source available.
The pundits on financial TV shows are constantly using forward "operating earnings" in order to get to their estimates of 10 to 12 times earnings. Please keep in mind that "operating earnings' exclude "write-offs" and only came into existence in the late 1980's in order to make the market look inexpensive. If you wish to go into more details on this subject you might also want to take a look at the article published in Barron's on our home page (Comstock in the News) titled "What's the Real P/E Ratio?".
We also expect to go into the reasons that there is such discomfort in this country. Most of the other bears have been concerned that the money printing by the Government will lead to much higher interest rates and hyper-inflation. We, on the other hand, are much more concerned with the private debt, which dwarfs the public debt, and it is the deleveraging of this private debt (paying it off or defaulting) that will be so painful for our economy.
Have a great 4th of July holiday and we will continue this next week.