Hi Jopps -
<Based on the fundamentals, I think we'll come crashing down at some point>
I really do not see this based on both (1) the current earnings being reported and (2) the intrinsic value (denominated in $US ) that many of these large cap companies have. If the "worst case" scenario occurs, would you really want to be in cash holding worthless $US? I want to own an asset that generates a lot ofworthless$US (ie free flow cash) and/or a company that owns a lot of hard assets (that increase as the $US falls).
Therefore, in the Long Term I do not see these very large companies "crashing down" at some point but in fact moving higher.
EKS
----------------------------------------------------------------------------------------------
Summary of Reported EPS for Third Quarter of ’11 for S&P 500
(as of October 11, 2011 4:27 PM EDT )
mobile.bloomberg.com 
Excluding financials, earnings are coming out ahead of expectations. Consensus estimate S&P 500 are $24.68 for the third quarter, representing a 17.1% increase over last year's third-quarter EPS of $21.89. For 2011, the S&P 500 EPS are estimated to be $99.28, which would represent 15.9% growth over 2010's $85.81.
---------------------------------------------------------------------------------------------------------------------------------
Prof. Schiller and CAPE, Maybe Correct Generally, But Specifically Wrong: The Market is Currently Cheaphttp://www.fastgraphs.com/_blog/Research_Articles/post/Prof_Schiller_and_CAPE,_Maybe_Correct_Generally,_But_Specifically_Wrong_The_Market_is_Currently_Cheap/
The article makes the argument that many large cap companies are "undervalued" and represent some of the best values in years. The premise of their argument is that many are not (or will not) be effected by the cyclical slowdown due to recession and Schiller & Cape over estimate the impact to future earnings from this. The article looks at Oracle Corporation (NasdaqGS: ORCL), Wal-Mart Stores, Inc. Common St(NYSE: WMT) and Pepsico, Inc. Common Stock (NYSE: PEP) and shows that when viewed over the last 10 years, these stock are undervalued at today's prices perhaps by as much as 20%.
One Example: Wal-Mart Stores, Inc. Common St(NYSE: WMT)
Our second example looks at Wal-Mart Stores, Inc. (WMT), a potentially faster growing recession-resistant company, over the same 1995 to October 10, 2011 time frame. After becoming excessively overvalued over the period 1995 to year-end 1999, Wal-Mart's share price went sideways before finally reverting back to fair value by the end of September 2007. Consequently, what had been a dangerously overvalued blue-chip company for many years, has finally and recently become an attractive investment opportunity. Today's current undervaluation with a blended PE ratio below 13 represents an extraordinary opportunity to invest in this king of retailers, in our opinion. Followers of CAPE would be denied this tremendous opportunity.
Conclusion from the article:"..Therefore, we believe that some of our finest and highest quality businesses are currently priced at the best valuations that we've seen in many years. Low valuations, like we see today, represent an excellent opportunity for investors. As Warren Buffett has wisely advised:“Be fearful when others are greedy and greedy when others are fearful.”With so many people afraid today, there's a cornucopia of quality common stocks available. This article highlighted but a few....".
--------------------------------------------------------------------------------------------------------------------
I do know that the Financial companies are broken and probably bankrupt. The Government continues to rack up huge budget deficits and LT debt. These things will be fixed over time. As they do, the current undervalued large caps will eventually become overvalued but not for some time.
Finally, if the end game is to "debase" the U.S. dollar (due to a non-manageable LT U.S debt ), these large Cap money machines will become that much more valuable based on the hard assets they own and/or the free cash flows they generate. Why hold worthless dollars when you can own a company that generates tons of free cash flow and/or holds a large amount of hard natural resource assets (ie like Oil & NG).
EKS |
