Goldman turns bearish on economy - valuation implications

Taking the earnings estimates Goldman gives for 2008 and 2009, the SPX should be valued around 600. That's 9 times the earnings they assume - so markets are overvalued by 50% right now. Or to put it the other way around, trading at 15 times forward earnings is not cheap as so many gurus claim. This is if Goldman is right and the world gets away with a recession - unfortunately the signs are for a much more severe economic contraction going into 2010 and far beyond as we can see by some samples of history.

The Obama speech was weak and one could have rather expected to see Mrs. Clinton to hold the speech with all their husbands old aides in the advisory council of Obama. Let's give him credit that he must be exhausted after such a tough campaign and therefore he had no energy while he addressed his economic ideas. Actually, in face of such a crisis, the procedure should be changed and the new president should immediately take over his office. That's the perfect wrong time to stick to these principles.

Excerpt from:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aX.L37mmsROM&refer=worldwide

Goldman Cuts S&P 500 Profit Forecast, Citing Economic Slowdown

By Jeff Kearns

Nov. 7 (Bloomberg) -- Goldman Sachs Group Inc. reduced its 2008 and 2009 profit forecasts for companies in the Standard & Poor's 500 Index, citing slower U.S. economic growth and larger losses for banks and brokerages.

David Kostin, who leads Goldman's New York-based portfolio strategy team, cut his 2008 S&P 500 profit forecast by 9.7 percent to $65 and his 2009 estimate by 9.3 percent to $68.

``The reduction incorporates a weaker economic outlook than previously assumed, greater estimated losses for the financial sector, and weak third-quarter earnings results and forward guidance,'' Kostin wrote in a note to clients.