Some Questions I Ask Myself.

These are the questions I ask myself as I've taken a look at most of the 2013 forecasts that Wall Street's put out.  

New Taxes:  Much has been made of the new Obamacare taxes and the higher FICA taxes that will be paid by individuals in 2013.  I think I saw a post over on CNBC last week that said for individuals ,every $25,000 in income means an additional $500 of taxes up to around $100,000.  People focus on the regressive nature of these taxes and the cumulative loss in purchasing power to the economy.  Nowhere have I read anything noting that the cost of energy is down significantly in the past year.  My December heating bill was nearly $150 dollars lower than last year, a combination of lower energy costs and a so far mild winter.  I'm paying between 30 and 40 cents less at the pump each time I fill the car {In my case the scooter}.    Assuming the nation at large is also a beneficiary of these trends, how much does these savings offset the drag of higher taxes to the average American family?  

In regards to gasoline.  Via  Gasbuddy.com I've looked at historical gas prices over the past 8 years.  Since the summer of 2007 average gas prices traded in a about a dollar range, roughly  between $3.11and $4.12.  See here. What happens if the current energy bonanza means gas prices remain range bound in either this or a lower range over the next few years?  What is the impact on that?   Has anybody tried to quantify that impact on the economy?

What if when we look under the economic hood and step back from the day to day information overload we find out that things are getting better, perhaps much better than most currently think?  What if economy grows this year better than 2% which is so far a number most don't expect to see happen.  Is that a multiple expanding event for stocks?

And about stocks, just a note.  While stocks have had a pretty good run of late, from my perch they have instead been in a trading range since September.  By my work as I noted Monday, stocks are  overbought and probability from that means that at some point equities should take a breather.  Stocks are up about 3% so far in January.  Worst case scenario I've seen so far for 2013 is that earnings remain flat with this year.  Say that's the case.  That would seem to imply that stocks end the year somewhere where we are about now.  That would imply about a 5% total return in 2013 when you add in dividends.  Not great but not the worst we've ever seen either.  Probably means though we are looking at some point a correction of 10-15% from these or even higher levels before we claw back to that level if earnings do come in flat which right now would imply a soft first half of the year.  

But let's just say that some of the points I bring up above mean the consumer isn't as constrained this year as we think and let's just throw out a possible $108 EPS number for the S&P 500 then here's what I see.

@ 108.  {About a 5% estimated earnings increase}

13 PE is 1,404 and a 7.6% earnings yield.  

14 PE is 1,512 and a 7.1% earnings yield.

15 PE is 1,620 and a 6.7% earnings yield.

16 PE is 1,728 and a 6.2% earnings yield.

The earnings yield for most of the time I've been in business has been about 5-6%.  That was from an interest rate level much higher than it is today.  A mid-range of that historic level {around 5.5%} puts the S&P 500 around 2,000.  I don't believe that a 2,000 print on the S&P 500  that's going to happen anytime soon but I'll throw the number out there because that's what historical records imply.  

*Long ETFs related to the S&P 500 in client and personal accounts.