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Monday, December 08, 2008
Posted by Roberto
4:07 PM 0 comments

STILL HAVEN'T REACHED LOWEST VALUATION LEVELS

John Mauldin, author of the popular Thoughts from the Frontline e-letter, isn't buying the "stocks are cheap" mantra.

June 2008, John Mauldin's historical comment:
"We have seen the heads of virtually all financial institutions stand up over the last few months and claim the worst is behind us. Why would anyone listen to these people? They didn't see the disaster coming, and yet somehow they are qualified to tell us it is all alright! Perhaps I am just unduly skeptical, but this reeks of a conspiracy of optimism. The recession has barely started, let alone reached its nadir. The market moves of late have all the hallmarks of a classic sucker's rally. This isn't discounting the recovery, this is denial! Far from being behind us, the worst may well still be ahead!"

December 2008:
"This is going to be a longer recession we've had in a long time and earnings are going to be impacted a lot more than people are currently thinking. If earnings do disappoint, today's "cheap" P/E ratios will prove to be a sucker's bet."
Mauldin predicts valuations will eventually fall to record low levels, meaning low single-digits price-to-earnings ratios, before ultimately finding a floor.

December 2008 Volatility:
Regarding volatility, Diane Garnick, investment strategist at Invesco, notes that if the S&P is at 900 and the VIX at 50 (current levels are 899 and 54, respectively), the market is pricing in a two-thirds chance the index will trade between 770-1029 over the next 30 days creating one of the most difficult environments to make a commitment to stocks.