The Obama Economy

[cobra de capell]

Yesterday, President Obama stated, "Profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you’ve got a long-term perspective on it,”

The President was likely speaking to the "P/E" ratio which is used to measure companies against each other. But P/E ratio does not stand for "Profits" and "Earnings". It stands for "Price/Earnings". This is the measure by which a stock price is compared to the earnings per share of that same firm.

Hence, a firm that has a stock price of $5/share, and earns $.50/share has a P/E ratio of 10 (5/.50). Alternatively, a firm that trades at $40, and has profits of $2/share has a P/E of 20. The lower the P/E ratio the more attractive is the stock price.

Obama's gaffe is laughable if it weren't so frightening. It's indicative of his ability to pontificate on a subject in which he has little or no background or understanding.

This is the most underrated story of the week. Bush would have been laughed out of town with such a remark.

This is just a nightmare...