Sell (Stocks) High, Buy (Housing) Low . . . Again?
Stock market investors who’d gotten in at much lower levels and were worried that a correction was overdue decided to take profits.
The sector they turned to?
The housing market, where wary Buyers burned by the last downturn were still keeping their distance — or clamoring to get out at the bottom.
The foregoing pretty much describes what savvy investors were doing . . . in the late ’90’s.
Back then, of course, the Nasdaq was well on its way to its 5,000-plus moonshot, and stocks like Pets.com were fetching — temporarily — billions despite having no sales or earnings.
And the real estate downturn that was still fresh in people’s minds?
The early ’90’s bear market, which was especially severe in places like Manhattan and Southern California.
Then and Now
Fast forward to today.
After rallying some 75% now from the lows set in March, 2009, here’s what Gluskin Sheff analyst David Rosenberg says about stocks today:
The April data was just updated and showed the inflation-adjusted normalized P/E, premised on “bird-in-the-hand” (as opposed to consensus earnings forecasts, which is historically more than 20% higher than we get actually get ” one reason why Wall Street banks are dubbed “the sell side”) 10-year trailing profits, expanded to over 22x from 21x in March.This is not nosebleed territory, but it is expensive; the historical average is 16.4x. So, this implies that the market is currently 34.7% overvalued benchmarked against the historical norm. It would be nice to say that a higher-than-normal P/E is justified by low inflation and low interest rates. But frankly, real bond yields are not that far from their long-run averages; however, equity valuation is, and something is going to give at some point.
–David Rosenberg, Gluskin Sheff (4/21/2010)
Translation for non-economists: ‘stocks ain’t cheap anymore.’
As Yogi Berra would say, is it “deja vu all over again?”