What now DOW?
Where do we go from here? Earlier, we said sell the news, but what news? Geithner (US Treasury) announced his “plan” but forgot to include any details. After promising for almost two weeks to give a “detailed plan” he clearly did not.
Meanwhile are we surprised the market is down today? The only real surprise is that the DOW is only “off” 279.25. It could go lower, much lower. Why?
Forget all the “new” talk about PEG Ratio, 200 Moving Day Average, Enterprise Value, Price/Sales, Price/Book or “whatever”. It’s all about Price/Earnings. Period. And where are we on P/E? The S&P 500 (Standard & Poor) Index has historically traded around a 15 P/E according to several published reports. You can find other numbers, depending on how they want to quantify “earnings”, but based on published reports in Barron’s and The Wall Street Journal, and CNBC reports, lets us 15 as our number. At the S&P high on October 11, 2007 of 1,576.09 the P/E was around 25. If you take the estimated S&P earnings for 2009 of $49, using a P/E of 15 brings the S&P 500 Index to around 735, an additional drop of 135 or 15%.
