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« Fed Cycles | Main | Who Would Have Thunk It? »


One of the best graphics I've seen in ten years

Weak dollar, asset-based inflationary cycle. History does repeat itself. Only question is if we will continue to see inflationary pressures or whether we are now going to experience deflationary pressures with the idiots driving hard assets to 100 year highs in some instances. PE has a realistic chance of getting to 7-12 before it's all said and done. This cycle or next cycle will was out and provide a tremendous buying opportunity.

PE compression, as earnings rise is a rare event. There have been 8 two-year periods where earnings rose and PE's fell since 1955. The average return in the subsequent 3rd year is 24.7%.

Another similarity to the '94-'95 scenario...history rhymes.

If you want history to rhyme, you had better look beyond a statistic without other supporting information. The PE expansion or price to book or price to sales has occured this cycle in many asset classes. Homebuilders, metals, small caps, broker/dealers, transports, commodities.

Some of these are at valuation levels not seen in ten to fifteen years. A rising tide lifts all boats. So, we are going to see another 25% increase in PE expansion at this phase of the cycle while the Fed is still raisng rates? That would also expand other equities that are at the peak end of valuation metrics. Uh, I don't think history supports your case. You can't do single variable analysis and come up with high probability scenarios.

May happen but a multivariable analysis does not support your conclusion. And quit stealing Mark Twain's quotes! :)

Please re-read my post. PE COMPRESSION (not expansion) coupled with rising earnings have "predicted" higher markets, and is a rare event. The past two years have given this signal again. You can choose to ignore this statictic, or look to see if other similarities exist between these periods. "95-'95 have similar characteristics. Did you get many chances to buy pullbacks in '96? Equities (by definition of compressed PE's) are NOT at "peak end of valuations".

Good luck.

I did read your post. I understand fully what you are saying. You are missing my point. You believe the S&P PE will expand because it has contracted for two years. I'm saying you are looking at the wrong index. The S&P's PE did not expand and has not expanded this cycle. It has been other indices. They are now at extreme levels of valuation and do not support your argument for an S&P PE expansion. Nor does a multi-variable analysis of the surrounding economic and alternative asset class investment choices.

Well, data mining is an art. We can agree to by all means take the other side of my trade.

8 for 8 since '55 gives me confidence in my long position.

Again, good luck.

lol! Nothing like a healthy debate. I don't like anyone to lose money so I wish you luck. But, I will say single variable statistics and data mining is a paradox. Btw, we are at the height of peak earnings over the last fifty years. There is no precedence for earnings as a percent of GDP to expand even further. That's 50 for 50. Pretty good statistics there too.

SS and X,

Thanks a lot for the great back and forth. I enjoyed reading it. We'll have some more charts tomorrow.


Get your butt in here Paul so we can hammer on you a little bit. :)

Maria B had lunch with God today, and will be reporting his opinion on this debate right before the close....Straddle time! ;o)

Did anyone actually think the Fed Chairman was going to say, "Yes Maria, the market got it right. The Fed is done raising rates."

I think Maria is a little bit of a sycophant. She's come on before with her little tid bits of ass kissing reports. She can't be having lunch with God today because he's on my calendar. LOL!

There is as reasonable a chance that she misinterpreted his comments as the market originally misinterpreted Bernanke's comments. And, as you state Paul, what the hell is is going to tell her? I mean really? CNBC needs a competitor. Can we get ROBtv from Canada into the US market? Get Mr. Deep Pockets, Laszlo, to fund us.

I think Maria needs to focus more on winning me over for a date and less time proselytizing Fed policy.

Isn't the PE ratio coming off the highest in history (1999 - 2000)?

Where do you get you P/E historic data from? Is there a place where I can get it for free?


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