David Rosenberg Says the Market is Overpriced

By on October 10, 2009

Joe Weisenthal has written about David Rosenberg’s recent special report claiming the market has discounted 5 years of expansion in the current price of equities.

From Rosenberg’s report:

“On an operating (“scrubbed”) basis, the trailing P/E multiple on the S&P 500 has expanded a massive 10 points from the March lows, to stand at 27.6x. Historically, when the economy is taking the turn away from contraction towards expansion, which indeed was the case in Q3, the trailing P/E multiple is 15x or half what it is today (and that 15x is also calculated off depressed earnings level of prior recessions.

– While we will not belabour the point, when all the write-downs are included, the trailing P/E on “reported” earnings just widened to its highest levels in recorded history of nearly 140x, which is three times the levels prevailing during the height of the tech bubble.”

SMA Comment: With today’s extremely low level of interest rates, stocks (especially high quality blue chips), do not appear unreasonably overpriced. Of course, interest rates can move up which would put pressure on equity valuations if earnings do not recover significantly.



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