Buyers to the Rescue
Research for Online Investors

by John Dalt

8/27/09

Initial jobless claims and GDP numbers came out premarket. Unemployment was more than expected but less than last weeks. The GDP shrank 1% in the second quarter, which was better than expected. There was no discernable impact on the market as we drifted lower, until late morning when buyers came to the rescue and started picking up bargains. The market wants to rally, we are looking for 1100 hundred on the S&P 500, but will hit resistance at 1050 1106 is the close on 9/29 last year, and 1053 is the 50% retracement of the high to low set on March 6, 2009

The internet is truly a wonderful resource, if you are careful what you believe.  I was searching this morning for verification that Senator Harry Reid (D. Nevada) had a relative that was a horse thief.  After five minutes, we not only confirmed that he did, but so did Hillary Clinton.  Amazingly, they both had the same first name, and picture of being hung.  I guess that did not hold up.

The other search I conducted was on Teddy Kennedy (RIP).  I found an article that detailed his approach to Russian General Secretary Yuri Andropov.  It seems Sen. Kennedy wanted to help the communists counter Ronald Reagan’s stiff anti-communist stance.  I will continue to adhere to my mothers' warning to be quite if I can’t say something nice.  I will let you read and decide for yourself.  Was Kennedy a fellow traveler?

There are quite a few references to read.  This one from FrontPageMag.com is good.  If you google, you can find the actual document, read it yourself.  We will all have our sins to answer for, I am glad Sen. Kennedy will answer for his.

The FDIC now has 416 banks on its problem list.  This is the most in fifteen years.  There have been 81 banks closed so far this year.  These bank closings have drained the FDIC funds to $10.4 billion.  They can borrow from the treasury and have special assessments due from banks to replenish their coffers.  Over 28% of the 8195 commercial banks and savings and loans, insured by the FDIC, posted a loss in the last quarter.  You can read ABC News report on “Banks on the Brink”

Congressional town hall meetings have erupted across the country. Some democrats have accused the vocal opponents of national health care of “brown shirt” tactics. The reference is to the Hitler Brown Shirts that terrorized the German nation in the run up to the take-over by the Nazi Party. A good video sent to me by subscriber E.L. catches the mood. Watch a Marine challenge his congressman to uphold his oath.

Today's chart illustrates how the recent plunge in earnings has impacted the current valuation of the stock market as measured by the price to earnings ratio (PE ratio). When the PE ratio is high, stocks are considered expensive. When the PE ratio is low, stocks are considered inexpensive. From 1936 into the late 1980s, the PE ratio tended to peak in the low 20s (red line) and trough somewhere around seven (green line). The price investors were willing to pay for a dollar of earnings increased during the dot-com boom (late 1990s) and the dot-com bust (early 2000s). With the recent plunge in earnings and stock market rally, the PE ratio spiked and just peaked at 144 - a record high. Currently, with 97% of US corporations having reported for Q2 2009, the PE ratio now stands at a lofty 129.

The earnings are depressed and the market obviously expects a return to pre 2009 levels.  How fast will the economy recover, and profits grow?  Stock prices are reflecting optimism.

Subscriber M.N. wrote from Norway that we should look at Norse Energy, a local company.  They are joint venturing with Chesapeake and Statoil.  They are drilling in Brazil and the Marcellus shale in the U.S.  Their goal is 12,000 mcf per day of U.S. natural gas production by the end of 2009.  Norse Energy has applied for ADRs to be listed on the OTCQX exchange.  We will watch as it may be listed by the end of this month.  I will do more research on it, thank you for your information.  You can watch their second quarter webcast from August 18, 2009  I make no recommendation on this stock, at this time.

Thank you for sending this note in.  I try to be very cautious of “story” stocks, but we will watch it.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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