With the recent US recession, the stock market took a plunge in the last year.  Since March, the stock market has  been steadily climbing and as of this weekend, the Dow is on the verge of hitting 10,000.  There has been much media attention towards a potential recovery and many people are starting to say that this recovery is here to stay. 

I think that ultimately, there will be a recovery in the stock markets.  However, I do not think the time is now.  At this time, the media appears to be, for the most part, bullish.  In my opinion, they are full of BS.  There is nothing that supports the level that the stock market has reached.  Here is an article that I read last week that sums it up very well – don’t worry, I’ll give you the gist of it so you don’t have to read it.

The article claims that we are due for another correction and that once the Dow hits 10,000, people will start selling.  I think the most telling piece of information mentioned in the article is that when you look at price to earnings (P/E) ratios of the current market, the market is extremely overvalued.

“Based on P/E ratios, the stock market is grossly overvalued, even at current prices. As per Standard & Poor’s research, the Q3 2009 P/E ratio is 138.97.  Historically, a P/E ratio north of 20 is viewed as expensive.  Also, historically, the market almost always corrects within a year of a 20+ P/E ratio.  Imagine the impact of a 140 P/E ratio.”

What the article is essentially saying is, there are no earnings to support the current prices of stocks.  The market is overvalued because everyone is so optimistic about the market.  The article claims that the stock market has not bottomed out because the P/E ratios have not completely reset.  In order for the stock market to bottom out, the P/E ratios have to fall below historical reset levels. 

I thought this article was a little too pessimistic, but I do agree that the current market rally is not sustainable.  Clearly if P/E ratios are so high, there is nothing substantial supporting the prices of stocks.  There will have to be a correction coming soon. 

What do you all think? Is the stock market overvalued or is this current rally the real deal?

Lawmakers in the US are considering a new bill called America Saving for Personal Investment, Retirement, and Education (ASPIRE Act).  This act will provide every newborn baby in the US with a $500 savings account.  The idea of this proposed bill would be to increase personal saving by Americans.  The money could be used for education expenses, buying a home, or saving for retirement once the child turns 18 years old.

I do not know much about this new proposal so far, but at a glance, I think it is potentially a good idea.  If only I had $500 in the bank when I was born and it was put in a high yield interest account.  It would be worth quite a bit right now with all that compounding.

Still, I would like to hear more about what this bill would entail in terms of taxes, restrictions, and other details.  I wonder if you would get taxed when you take the money out of the account and if there are any specific restrictions on what you could use the money for.

What do you think of this proposal? Would giving every newborn be a good idea for our government?

I enjoy my job, but I sure as heck wouldn’t mind doing this job:

“Briton Ben Southall flew out on Wednesday to Hamilton Island, in the Great Barrier Reef, to start his six-month caretaker duties, for which he will be paid A$150,000 ($121,000).”

He gets to live at a resort and explore a tropical island and still get paid $121,000?! Wow.

What would your dream job be?

My family has a very old Toyota Previa at home. This van is so old that they don’t even make it anymore. I remember taking many family trips to Toronto in it. Now that the van has served its purpose, it seems to be more trouble maintaining it than it is worth. There is no point in repairing the van anymore. Thankfully, with the Cash for Clunkers program now there is something we can do with it. Starting July 1st, if you are looking to buy a new car, you can trade in your “clunker” and get a $3500 – $4500 credit toward purchasing a fuel efficient vehicle. The program is actually officially called the Cars Allowance Rebate System (CARS) Act. More information can be found on its website. Of course, we might not want to take advantage of this since we don’t really need another car. I guess we’ll have to think about it.

Here are some important points straight from the website:

• Your vehicle must be less than 25 years old on the trade-in date
• Only purchase or lease of new vehicles qualify
• Generally, trade-in vehicles must get 18 or less MPG (some very large pick-up trucks and cargo vans have different requirements)
• Trade-in vehicles must be registered and insured continuously for the full year preceding the trade-in
• You don’t need a voucher, dealers will apply a credit at purchase
• Program runs through Nov 1, 2009 or when the funds are exhausted, whichever comes first.
• The vehicle that you are trading in is required to be destroyed. Therefore, the value you negotiate with the dealer for your trade in is not likely to exceed its scrap value. The law requires the dealer to disclose to you and estimate of the scrap value of your trade-in vehicle.

To see where your vehicle lies in MPG the website gives you this resource: Fueleconomy.gov

If someone is going try this, please leave a comment or shoot me an email to let us know if it worked for you.