Friday, February 20, 2009

Some sleepless snippets

My astronomer duties have sent me to a remote observatory in west Texas for a week, where I'm staying up nights at a telescope and sleeping all day in a dormitory - or at least trying to sleep. Since I'm running a little low on eloquence right now, I'll just give a brief review of current events and answer a reader question.

Bear Markets: They're GRRRRRZZX!

As predicted, the S&P 500 broke down through the lower rising trend line on Tuesday and then kept going. (I didn't predict when it would happen - only that it would eventually happen.)

The Grizzly Short Fund (GRZZX) ended the week at a price of $9.91, which is a 9.7% gain from my average purchase price of $9.03. I haven't cashed out yet, but I'm going to remain vigilant for any signs that the current decline is coming to an end.

Earnings forecasts: From bad to worse.

The forecast real P/E ratio for the 3rd quarter of this year is now 62, or about four times the historical average "fair value" of 15. At this point Standard and Poor's still expect a modest earnings recovery by next year, but the forecast for the end of 2010 is still an overvalued P/E of 20. If you believe the long-term earnings forecasts, (questionable) and if you believe that earnings determine stock prices, (they don't) then, based on that more optimistic latter number, the S&P 500 could be expected to fall another 25% from today's level.

Thoughts on particular companies: None.

I don't follow any single companies in the stock market. In fact, if you ever catch me making a "buy" or "sell" recommendation for an individual stock (as opposed to an ETF or mutual fund) then it probably means I've been possessed by aliens ... while observing on a mountaintop at 3 AM in west Texas. Some people are good at picking stocks that outperform the S&P 500, and my hat is off to them. The problem is that there are approximately 9000 companies listed on the U.S. stock exchanges, and that's too many choices for me to wrap my head around.


jolly_rancher said...

How is the sentiment level? Still optimistic?

Jody said...

As of Friday's close it had moved towards neutral, but still on the optimistic side of neutral. In other words, investors still aren't as pessimistic as they should be given the new market lows. We'll see how much more pessimism is caused by today's drop.