If I were to awaken today from a five year coma, being the chap I be, I'd first ask about my family, then the market, then the economy...
Here's how the market/economy Q and A (an analyst) would go:
Q: What's the S&P's current multiple? (the aggregate price/earnings ratio for the companies making up the S&P 500)...
A: Somewhere between 12 and 14, based on estimates... Probably will come in around 13...
Q: That's pretty cheap... How's the earnings outlook?
A: Two-thirds of companies have been meeting or beating expectations... Forward guidance has been decent, depending on the industry... Next year's multiple looks to be around 13 as well...
Q: That's great! What about profit margins?
A: Higher than they've been since the '50's...
Q: That's incredible!What about balance sheets?
A: Huge cash positions, and any debt is at extremely low interest rates...
Q: Unbelievable!! What about overall interest rates and money supply?
A: Interest rates are at all-time lows and money supply is off the charts...
Q: Wow!The market looks better than I've ever seen it!
Q: Now tell me about the economy...
A: Well.... we just went through the worst recession since the Great Depression - and we're just limping along at this point... Unemployment remains at 9%... The Administration passed a trillion dollar stimulus package that went largely to the states, which they used largely to fund their transfer payments (welfare, etc.)... We now have a national healthcare plan that has done nothing thus far but mired the industry in uncertainty... The Fed has embarked on a QE bonanza like you wouldn't believe... Its balance sheet is bulging with $2.8 trillion in treasuries and mortgage backed paper... Our nation's budget for 2011 is something like $3.7 trillion and our revenue is $2.2... The debt ceiling was recently raised to accommodate the borrowing for another year or so... The Administration has been on a class warfare campaign as ridiculous as any we've ever seen... The financial industry has been saddled with some 400 new regs... Small banks are struggling mightily to keep up... I could go on and on but suffice it to say that all this explains why companies are hanging onto all that cash... Oh and don't even ask me about Europe...
Q: Oh my God! That's sickening!
A: Yep...
Q: That explains why stocks aren't going through the roof...
A: Yep...
Q: I imagine corporate earnings are coming largely from the business they're doing in emerging markets, which I suspect are doing much better than us...
A: Yep...
Q: Hmm... Sounds like corporate America has its act together... Guess I'll be owning stocks... And without all this crap going on, I wouldn't be getting in this cheap... I like it!
A: I agree... But you should expect a great deal of volatility going forward...
Q: I know, but I love that... When I rebalance twice a year, I'll be selling when the market's rising and buying when it's falling...
A: Yep...
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