CNBC, Are the "Green Shoots" related to "Marijuana, Inc"

Today the Market is up for the 5th day in a row, good times indeed. I would normally take this as an encouraging sign as the reflation/recovery trade is back on, unfortunately the market is getting ahead of itself. Right now the Stock Market is factoring in 4% growth in GDP of 2010 as the market is a forward looking vehicle. From USA Today:

The Federal Reserve is also talking about the economy in a more upbeat way, and said last week that it would keep short-term interest rates at about 0% for an extended period in an effort to boost the economy.

The optimistic tone is also being driven by economists who are raising their growth forecasts for the second half of the year, which runs counter to the previous consensus of subpar growth in coming quarters. ISI Group, for example, is estimating 4% GDP growth in the final six months of the year. The ISI estimate is above the long-term average of 3.4%, according to government data. But ISI's estimated growth rate is still shy of the average 7.3% growth in the quarter after a recession ends, data from Strategas Research Partners show.

http://www.usatoday.com/money/markets/2009-08-18-investors-buy-on-faith_N.htm

I sure like the sound of that don't you? Sadly I don't see any evidence of that happening. The rally has advanced to the point that "Green Shoots" should be plants by now. How are those plants doing? From Business Week:

So far, second-quarter results have arrived from 83% of the Standard & Poor's 500-stock index companies, and earnings are down 28.4%, according to Thomson Reuters (TRI). Before earnings season officially began a month ago, analysts were expecting a drop of 35.6%. The S&P 500 is up about 13% since Alcoa (AA) kicked off the second-quarter earnings season on July 8 through Aug. 6.

http://www.businessweek.com/investor/content/aug2009/pi2009087_585511.htm

This of course has a bad effect on the P/E ratios of companies:

Scary valuation metrics

In general, P/E ratios are based on forward-looking or projected earnings, which often reflects wishful thinking. The P/E ratio, based on recently reported earnings, available on Standard and Poor’s website, is a whopping 143.95. This is not a typo!

The earnings for S&P 500 constituent companies have declined over 95%, since peaking in Q3 2007. If current estimates hold, Q3 2009 will see the first ever 12-month period during which S&P 500 earnings are negative.

P/E ratios are one of the simplest yet most accurate valuation metrics around. A historic analysis of major market bottoms show that there has not been a single prior bear market that bottomed without P/E ratios (and dividend yields) reaching rock bottom levels. In fact, those levels can even be used to calculate a target range for the ultimate market bottom.

Just as the human body is not healthy unless it runs at 98.6 degrees, the stock market is not healthy unless P/E ratios and dividend yields reach those trigger levels. Needless to say, a P/E ratio of 143.95 (even P/E of 15) is far removed from levels indicative of a bottom.

http://www.etfguide.com/research/213/8/Is-The-Worst-Really-Over?/

Okay so there are no "Green Plants" just yet, I just wonder where this growth is going to come from?I guess not from anybody who uses the freight system to either bring in raw materials or ship finished goods.

WASHINGTON, August 6, 2009 — The Association of American Railroads today reported 1,319,387 carloads of freight in July 2009, down 17.5 percent (280,659 carloads) compared with July 2008. U.S. intermodal rail traffic, comprising trailers and containers on flat cars not included in carload figures, totaled 922,734 units in July 2009, down 18.0 percent (203,061 trailers and containers) compared with July 2008.

For the first seven months of 2009, total U.S. rail carloadings were down 19.0 percent (1,854,657 carloads) to 7,885,039 carloads, while intermodal traffic was down 17.2 percent (1,153,208 units) to 5,569,802 trailers and containers.

All 19 major commodity categories tracked by the AAR saw carload declines in July. The biggest carload declines were coal (down 9.9 percent, or 68,879 carloads); metals and metal products (down 47.7 percent, or 29,849 carloads); metallic ores (down 58.9 percent, or 26,724 carloads); and crushed stone and gravel (down 25.8 percent, or 26,402 carloads).

http://www.aar.org/NewsAndEvents/PressReleases/2009/08_WTR/080609_Traffic.aspx

So railway traffic isn't killing...what about electricity usuage?

Only two industries added jobs in the second quarter of 2009. One was health care, a sector where demand for products and services usually transcends even the most dire economic circumstances.

The other was a bit more surprising: utilities. As I pointed out last week, demand for electricity in the US fell sharply over the past 12 months. That was at least in part due to milder than normal weather. But the main reason was a dramatic decline in use by heavy industry.

http://www.kciinvesting.com/articles/10046/1/Jobless-Recovery/Page1.html


I am not saying we won't continue to go up or set new all time highs, what I am saying is be very careful here. We all saw how the internet bubble ended up. I can't say when the bubble will burst but stocks are closing in on bubble status......