Thread: Drocton Report: Euro Banksters Bleed Their Beast

The DROCKTON Report

6/2/2012

75% Stock Market Correction Underway

By Paul A Drockton MA





Historic PE Ratios of the S&P 500

Notice that in 2000 PE was at an all-time high of 45. The market corrected down to 15 in 2008. Investors lost 75% of their money. The chart shows that we have not corrected down to the historic PE of 5. That means there is another 66% loss staring stock market investors in the face.

Price to Earnings Ratio is one of the most important measure of a stock's relative value.

"The price-to-earnings ratio is a financial ratio used for valuation: a higher P/E ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with a lower P/E ratio. The P/E ratio can be seen as being expressed in years, in the sense that it shows the number of years of earnings which would be required to pay back purchase price, ignoring inflation and time value of money." (Source)

So, simply stated, a stock with a PE ratio of 20 would yield about 5% in annual return on investment. It also means that it would take 20 years for you to get your money back. Factoring in inflation and the declining dollar and you lose money with a 5% annual return. The market always corrects to value as the various charts all demonstrate.

In 1920, following a long correction, PE ratios went from 23 down to 6. That means that stock holders lost 75% of their initial investment. In 1929, PEs were averaging 30. The market corrected back to 5. Stockholders lost 85% of their money. In 1965 PE ratios were back up to 25. The market corrected down to 7.

Notice that in 2000 PE was at an all-time high of 45. The market corrected down to 15 in 2008. Investors lost 75% of their money. The chart shows that we have not corrected down to the historic PE of 5. That means there is another 66% loss staring stock market investors in the face.

Facebook entered the market with a PE of 70. Correcting down to 5 would mean a loss of 93% for those that bought it at its IPO price. It would also mean Facebook trading at $2.38 per share versus $38 as an IPO. The charts also demonstrate that there have only been a few moments in history where stocks can be considered a good investment based on actual value.

For the most part its been speculative growth followed by massive losses of money to the Wall Street Casino and their Put Options.

The only investment with real value remains precious metals. To buy physical silver or gold email pdrockton@aol.com

http://pauldrockton.com/June2.html