Vi, comparison of the market value of public companies and GDP in the US to that of Japan, or even in the US at two different times, raises a question. Is the portion of GDP attributable to those public companies the same in each instance? I am not presupposing any answer to that, but the answer could make the comparison invalid.
I do recall that the PE on the Nikkie was in the stratosphere in 1989, though, much like our bubble stocks. Yet our bubble stocks were, for the most part, not representative of the S&P 500 while their 1989 Nikkie was their leading industrial and financial companies.
BTW, I agree the market in the 1991 earnings trough was quite different from now (we are now approaching a 26 PE from above in a down market with declining earnings while then we reached it from below in a rising market with declining earnings), the point is that it is not reasonable to say that the market should go to some long-term average PE in an earnings trough. A "normal" PE is a range that depends on where you are in economic cycles (and on interest rates), not one single point.
Bob
PS: Today's loss puts the S&P at a 26.7 PE on trailing (4 qtr) GAAP earnings (not operating or proforma) which are down 31.4% from the year ago peak. On an operating basis (again, not proforma or Goldman BS), it is 20.9. |
