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Strategies & Market Trends : Buy and Sell Signals, and Other Market Perspectives

SPY 681.76

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Dec 12 4:00 PM EST

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To: sandeep who wrote (9251)	8/29/2010 8:25:18 AM
From: yard_man	3 Recommendations Read Replies (1) of 220121

>> I think that PE ratios of tech companies now versus 1991 is a bad comparison. << I thought you would make this argument. I also thought you would point to the "risk-free" rate as well. but re >> The BRIC countries are not going to go on a binge like the US and EU did during those days. But the total pie has to be bigger but will grow at a slower rate. << so we have slower growth for an industry that is somewhat mature where the PEs are almost double what they were when the boom started. perhaps comparing strictly to the likes of PG/JNJ/KO they may be a "relative" value ... at this point in the economic cycle, does that make them a buy? What about the leaders in tech? I have heard the argument that the current economic malaise has forced companies to delay upgrades, so we should expect a surge ... I have also heard that companies are squeezing the last hour of productivity out of each worker ... this is where we get the oxymoron: jobless recovery. It depends on who is trying to make their point. my analysis is considerably simpler as to whether or not they are "values," relative or not. 1) There are historic PE averages for the stock market as a whole and dividends. 2) There will be some reversion to the mean at some point for both -- we have been away from the mean for a long time. 3) When it comes to tech, it is very hard for folks to think of tech having the same long run mean as other stocks -- i.e. tech is somehow special -- but as you said -- it is now a "mature" industry. Perhaps for the industry, the market has it right -- relatively speaking -- tech is a mature industry with slower growth prospect in a continual state of declining costs per unit ... this may not be true of the other companies you cite as "more expensive."

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