Growl! Bearish warnings for stocks in 2009
Posted
Jan 08 2009, 01:29 PM
by
Kim Peterson
Rating:
Amid much speculation that we've already hit the bottom of the market, investment adviser Thomas Ryan shakes his head and says the worst is yet to come.
Stocks will decline in 2009, Ryan writes on Seeking Alpha, because they're still not cheap. On the most basic level, a stock is considered cheap when it trades at less than 10 times earnings. In 1982, for example, stocks bottomed with a ratio of 7 times earnings. But these days, stocks are trading, on average, at nearly 25 times earnings.
And housing prices are still crashing. October's home prices were down 18% from the year before. We won't see a market bottom until that slows down, Ryan writes.
Other signs that stocks will fall? Americans are going deeper into debt. More big writedowns on mortgage-related losses are coming.
And corporate earnings estimates are way too high, Ryan writes. The average analyst estimate for S&P 500 companies is $71.69 per share next year -- higher than the $44.91 in trailing earnings. "There is absolutely no way companies will earn more in 2009 than in 2008. None."
Companies are finding it very hard to restructure their loans, and credit spreads are at levels where companies can't fund themselves and survive, Ryan writes.
And more than 90% of hedge funds have lost money this year, he writes, some to the point where they aren't letting clients withdraw any more money. Half of the hedge funds out there could disappear this year.
"The market in 2009 is going to break people’s spirits, as even the patient investors who waited are going to lose money in bear market that seems to go on forever," he writes. "Those who waited for the drop before buying will get crushed just like those who were in at the top."
Image credit: Wikimedia Commons, public domain file
