Sense on Cents

Scott Black of Delphi Asset Management is one of the most highly regarded value investors in the market today. He was just interviewed on Bloomberg News and made the following assessments:

1. the economy can not substantially recover with a high and increasing unemployment rate.

2. there is a current disconnect between equity market performance and economic data.

3. stocks are NOT “once in a lifetime” bargains at current levels.

4. investors are “grasping at straws” chasing the market higher.

5. future earnings for the S&P 500 are $43 on a top down basis and $54 from a bottom up standpoint.  At yesterday’s closing level of 945 on the S&P, those earnings equate to price multiples of 22 and 17.5 respectively. Is that rich, cheap, or fair? Rich.

6. Over and above the fact that the market looks rich at current valuations, the S&P 500 has an 11-12% weighting in financials. Black maintains that we can not properly evaluate the earnings of financial firms under the relaxed mark-to-market accounting. (Please see my earlier post, Wall Street-Washington: “Pay to Play”)

LD