"Cheap stocks? They're an illusion": Wall Street analysts are still playing catch-up with a slowing U.S. economy. As of Oct. 29, 2008 the day before the U.S. government announced that the nation's economy had contracted 0.3% in the third quarter of 2008, Wall Street was projecting that earnings on the stocks in the Standard & Poor's 500 Index would fall 6% in 2008 from 2007 and then show a 16.9% increase for 2009. Citigroup, which came out with its own forecast that day, is projecting a 12.4% decline in 2008 earnings and a 13.5% drop in 2009.
Keep that in mind when you start thinking stocks are cheap based on trailing earnings for the past 12 months or on projected 2009 earnings per share. Seems like projected earnings have a ways to go to catch up with economic reality.
When you could borrow at an interest rate below the inflation rate, thus ensuring that, in real terms, you paid back less than you borrowed? After all, the bull market, fueled by this borrowing, virtually guaranteed a profit.
We're headed to early 1990 levels on the DOW. The credit world is in deflation mode and that means less spending in the future, perhaps for a very very long time (20+years). This will deflate all the big companies and earnings will correct over time.
I think people still think they DOW is headed back to 12000 or 13000 once we're out of this recession... they're fools. We can't head to those levels again without seeing another major financial crisis. I think the banks learned their lesson this round and the easy credit will be gone for this generation.