Are Stocks Cheap?

Tyler Durden's picture

Day after day we are bombarded by self-referential talking-heads bloviating on the last extrapolated data point and how that means to buy the dip because at "Name Your P/E ratio" stocks are still cheap. Well on a long enough timeline, the current 16.3x P/E is in fact extremely fair. While many point to entirely bubble-prone 28.6x peak in 2000 as 'evidence' that we can go much higher, the facts are that over the last 113 years of US equity markets, as P/E between 15.1x and 18x has indeed marked the 'top'. So are stocks cheap?


Chart: JPMorgan, h/t @noalpha_allbeta

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Clam McCain's picture

Stocks are cheap but gold is expensive

fonzannoon's picture

The question is phrased wrong. The question is, where else are you going to put your money?

Zirp is coming home to roost. Choose wisely.

The Juggernaut's picture

S&P will probably go parabolic to 2200 then once everyone knows that they have to settle in a worthless $USD it will go to 0.

max2205's picture

at least the 3:30 ramp is back...cha ching

ShrNfr's picture

If you do not mind putting your money into a tangible in the form of a company that has real pp&e that sells under tangible book value and produces real products that real people buy to produce real earnings, stocks are a reasonable diversification. They are just another way of purchasing a tangible. Faber makes that point in some of his talks on inflation. Note that Farcehook is not such a stock.

Xibalba's picture

You mean: War is cheap, oil is expensive. 

ekm's picture

This is going down any day now, anyday.

There is only one issue IMO, who will be the suckers to go down with it?


This game as internal infighting for sucker selection has been going on since MFGlobal collapse, in Nov 2011.


It just can't go on longer. Economy is dead due to this.

ghostzapper's picture

Aside from all of the signs we already know - what makes you so confident it is going down any day?  I think we need to see a PD fold and crumble since those cocksuckers hold most of the bags at this point.

ekm's picture

Because the market is up with 97% leverage and it's at the point that it looks unbeateable

Economy is dead. World is shunning the dollar. Oil is skyhigh.

It cannot get any worse than this, except for war inside USA


Anyday, anyday now, anyday

BurningBetty's picture

I'd give them that much "cred". They managed to push the P/E to "normal" levels with trillions upon trillions of funny money! You have to ask yourself, where on earth would that P/E be if the funny money never entered the market. 10? 8? 5???

Golden_Rule's picture

No, they've managed to push earnings to these levels with that funny money and massive debt loads.  I'd wager P/E would be in the same ballpark, but price would be much lower.  So, unless our (and the rest of the world's) exploding monetary base and national debts are sustainable, I'd say stocks are really fuckin expensive.

Dr. No's picture

As long as you understand securities are a Ponzi, the above graph makes sense.  More and more people (and their money) have been pumping stocks for the last century.  Like all ponzi, there is a requirement for future buyers.  I fear, with the baby boomers retiring, population growth stagnent, and rampant corruption, the "jig is up".  There just wont be enough future buyers to prop up price.  This is why the FED is in the market: they are already seeing lack of buying.  The question is, how long can they keep the Ponzi going?

Panafrican Funktron Robot's picture

Would just like to point out that earnings season begins next Monday.  

fonzannoon's picture

80 companies in the S&P have already guided down so they can beat. Earnings don't mean anything.

This is it. There is no place else to run. No place else to hide. Ask Snowden.

We are gonna close green because this ponzi is a beast.

kito's picture

what is it? you mean what we all see everyday, day in and day out....the same momentum to the upside in stocks....the same rah rah msm talking heads.....the same manipulated it???? cause it sure feels like thats all there is.......that that is what is it...........

Divided States of America's picture

I am buying a load of put options of the following by tomorrow close:

SSO, FAS, IWM. Tomorrow's POMO will be the largest of the month...and O-bastard will have his one day of glory before the floor shakes and crumbles but I will make sure I take advantage of these cheap put options.


Panafrican Funktron Robot's picture

Primer for the CNBC talking heads:

1.  The P/E ratio consists of two parts:  Price, and Earnings.  

2.  If Q2 earnings go down (especially in the financial sector), the P/E ratio goes up, unless the Price also goes down.


gjp's picture

Talking about self-referential, the 'E' in P/E has never been more driven by financial engineering.  Interest rates manipulated down while stocks manipulated higher generates equity gains and reduced interest expenses, and of course all sorts of earnings for the financial sector which is 40% of total profits in America.

Take out the financialization-generated E, and your P/E is in 2000 bubble territory.  And why not, triple digit multiples in the tech sector are back!  America will not shake its bubble fix until it hits rock bottom.

Rainman's picture

Bullzeye !! I salute you !

Its Only Rock N Roll's picture

The engineering of EPS by reducing share count in the current enviornment will go down as some of the worst capital allocation decisions by respective managements in the history of the markets.  Company after company is buying back stock at or near all time highs.  COF announced $1B today.  Totally smoke and mirrors to get the savants to buy more shares.  When it goes against them and people realized they wasted precious capital to buy inflated shares the shit will hit the fan (even more).  

Rainman's picture

USA ! ......operating under a national emergency directive since Jan. 24, 1995....Yeehaw !

GernB's picture

They wouldn't repeat it over and over and over it if weren't true.

bnbdnb's picture

Pretty crappy P/E considering the $3T it took to get there.

101 years and counting's picture

the question is, what are the REAL earnings.  not the "mark to whatever-the-fuck they want" earnings we currently have.

insanelysane's picture

POMO Tuesday isn't working.  See POMO Thursday, oh wait a minute.

Dr. Engali's picture

In an era where earnings are nothing more than financially engineered accounting gimmicks, stocks have never been more expensive.

disabledvet's picture

"how is one to know whether an irrational exuberance has taken hold" indeed. and top it all off...THIS RECOVERY SUCKS TOO! now START TRADING THIS BITCH JAMIE DIMON because JP and LORD Stanley have had enough of the PHUCKING BULLSHIT.

sbenard's picture

Oh joy! I see legions of Bernanke helicopters coming!

ebworthen's picture

P/E ratio = Promises/Expectations ratio

Neither tells you the value of anything.

gatorengineer's picture

P/E then isnt P/E now, with mark to Unicorn accounting, who knows what PE means? TARP QE was intended at least superficially by the Libtards to allow banks and corporations time to fill the holes in the balance sheet, instead they went on a bonus bonanza and filled their pockets and dug the hole alot deeper with tax payer money... How much pension money has been lost on faceplant, Zynga, etc....?

ShrNfr's picture

If I had to choose between investing in gold and investing in some lead, I would choose lead first. But only after I had purchased a Dillon Press.

yogibear's picture

With mark to fantasy accounting and reduced forward earnings pre-annoucements it's amazing 100% of the corporations don't beat lowered earnings and look cheap.

These corporations that are missing the boat and not cooking the books need to fire their accountants.

Bernie Madoff proved you could extend and pretend for years. 



The Invisible Foot's picture

I'm starting to get sick of hearing this shit as well.

kw2012's picture

If we had this economy WITHOUT 85 Billion a month in Fed purchases, I would feel much better.


Too many distortions out there.


What would the P/E be if the Fed had banks repurchase all the MBS at the price the Fed paid for them AND if the banks went back to mark to market? Because they haven't.

toadold's picture

I'm going to buy penny stocks, Chinese penny stocks 'cause that is where the future growth is!


nakki's picture

Its pretty obvious that Amazon is dirty cheap at or around $280. I mean how many analists have it as a buy. Shit, they're  going to make a $1.30 this year (down from $2 at beginning of this year) after losing money last year, and are now delivering groceries.That should really help their cloud business and kindle sales and just wait till 2020.

luna_man's picture



I'm stlill waiting patiently for the "cheap stocks"...You'll know "cheap stocks", the day ol'Ben, CAPITULATES!...


until, keep an eye on the charts for those yummy "shorts"