January 4th, 2019

Dear Family, Friends and Clients,

Happy New Year!

There are two major themes in today’s stock market letter.
1. Things are NOT as bad as they seem
2. I’ve been “born again”

#1: Things are NOT as bad as they seem

At the time of this writing, the S&P 500 is trading at 2,516 up 2.82% on the day. The combined estimated earnings looking forward 12 months, of the S&P looking is about $173 per share. If you divide $173 by 2,516 you get 0.06875 or a 6.875% earning yield on the S&P 500.  This is still a very attractive earning yield.

If we use the earnings from last year in September 2018, we divide $130 by 2,516 and get a yield of 5.166%. It still beats the 10 Year US treasury rate of 2.657%. *

For those of you who are contrarian investors, not only do we have a behavioral reason to buy at these levels (see the cover image of Bloomberg Business) ; we have a fundamental reason in so far as the earnings of the largest companies in the S&P 500 are still attractive……