Friday August 6. The market’s jumping around today like investors are bewildered.

Friday August 6. The market’s jumping around today like investors are bewildered. They are trying to find their footing. At times like this I think it is good to remember stocks sell for a multiple of earnings. Granted, that multiple varies depending on investors’ view of the future. Business people like stability. The larger the business, the more they plan. Large R&D budgets and products’ time-to-market require forecasts. Uncertainty dampens enthusiasm for putting up the big bucks, and businesses scale back. Individual consumers scale back when they are either pressed or worried or both. In recessions, citizens buy food and cosmetics and delay cars and forklift safety training (haha .. ouch!) Ten years ago, the Dow sold for 19 times earnings. Today it sells for 11x. It changes; nevertheless, stock price and earnings are related. If earnings stay strong, the stock market should not tank, despite bad politics and even bad economics. But buy when the politics are bad, because the market will be over-sold. That’s what I think the situation is now. Close DJIA 11,444.61 + 60.93 +0.54% on the day. Good study on P/E of the Dow: http://www.investorsfriend.com/djia_valuation.htm

DJIA Earnings Type	Annual Earnings on Dow Industrials	P/E Ratio at 12,170 DOW	Earnings Yield (1/P/E)
Actual latest year (trailing four quarters) GAAP earnings	$834	14.6	6.85%
Latest year operating earnings (removes negative earnings)	$839	14.5	6.90%
Forecast forward GAAP earnings for the next year (next four quarters)	$981	12.4	8.10%
Forecast forward operating earnings for the next year (removes negative earnings)	$981	12.4	8.10%
For Comparison here are the DJIA earnings in prior years:		Historical GAAP P/E	Historical Earnings Yield
2009 Actual GAAP Earnings (reported Jan 2010)	$624	16.7	5.99%
2008 Actual GAAP Earnings	$661	13.3	7.52%
2007 Actual GAAP Earnings	$831	16.0	6.25
2006 Actual GAAP Earnings	$720	17.3	5.78%
2005 Actual GAAP Earnings	$476	22.5	4.44%
2004 Actual GAAP Earnings	$592	18.2	5.49%

In five years, when the Dow is sitting at 21,000, we will look back at this time as an extra-ordinary buying opportunity that we missed because we let ourselves confuse politics with economics.

Friday August 5 at 4:30 AM: WASHINGTON (Reuters)

Jobs data on Friday could prove a make-or-break moment for global financial markets increasingly alarmed that the world's largest economy could skid into a fresh recession. Concerns over the weak U.S. recovery and Europe's inability to tame its spreading debt crisis have turned an intense spotlight on the monthly non-farm payrolls report. "The report is going to be very critical. One of the things that has been the largest headwind to economic growth has been the high unemployment rate," said Jason Ware, a senior research analyst at Albion Financial Group in Salt Lake City, Utah. "If there isn't job growth, it crystallizes in a lot of people's minds that we are in fact in an environment where growth may be really difficult to come by." U.S. stocks on Thursday suffered their worst sell-off in two years. European stocks slumped to a level not seen since after the financial crisis in mid-2009.

* Investors braced for the key U.S. monthly non-farm payrolls as well as the unemployment rate, due at 8:30 a.m. EDT (1230 GMT), seeking more insight on the extent of the weakness in the economy following a string of dismal macroeconomic data. * Economists see payrolls up by 85,000, according to a Reuters survey, after a tepid 18,000 gain in June. The unemployment rate was expected to hold steady at 9.2 percent.

Procter & Gamble Co posted a higher quarterly profit on Friday, as trimming costs and raising prices helped mitigate the impact of more expensive materials and some sluggish markets such as the United States. P&G, which makes everything from Gillette razors to Pampers diapers, earned $2.51 billion, or 84 cents per share, in the fourth quarter ended in June, compared with $2.19 billion, or 71 cents per share, a year earlier. Sales rose 10 percent to $20.86 billion, while the volume of goods sold rose 3 percent.

Comment: Through all this, Proctor and Gamble is making profit at the rate of $12 billion a year. (That’s a lot of money!) P & G is one of the 30 companies comprising the DJIA. Stock prices are supposed to be based on investors perception of the future cash flow that comes from dividends and appreciation in price. Amidst the pandemonium, the technical basis for a non-collapsing stock market is still present. Fear may rule the markets, but even fear has its limits. Fear is an intangible that can become tangible. Financial panics are aptly named. But if the largest corporations remain solidly profitable, “What? Me worry?” We should all play http://www.youtube.com/watch?v=-LXl4y6D-QI and have some tea, decaffeinated.