where did i say the historical mean p/e isn't lower? of course it's lower. my argument is that as long as the market remains at lala land valuations, it is not reflecting reality...and is therefore not a 'normal' market.
perhaps i should go back in time a bit to explain further. when the NAZ crossed an aggregate p/e of 150 for the first time on the way UP, i began to argue my closed system theory (it is less relevant now than it was then, i concede that). essentially i argued back then that once a certain threshold is crossed in terms of valuations, these yardsticks become irrelevant in trying to predict market direction. after all, a 150 p/e is as meaningless as a 200 p/e or a 300 p/e - and indeed the NAZ went subsequently to a 260 aggregate p/e (and that was without counting the loss makers).
i hope this conveys the gist of it...namely, that once the NAZ (goes for the other indices too, but this one was the most glaring example) began to exceed its historical upper boundary in terms of the p/e (which is 45), traders became engaged in a market of collectibles - not a market representing any kind of business fundamentals.
it is only NOW that the fundamentals are BEGINNING to catch up with it, so it's no longer the same collectibles market that it was during the mania.
as an aside, i do agree with you that the problems you cited as lingering in the background and representing potential future problems for the market WILL become triggers for market declines - that's how it is in bear markets, negatives tend to surface with regularity, and stocks tend to sell off when they do.
back to the 'collectibles/closed system' stuff: interestingly, NAZ earnings are now collapsing even faster than the value of the index...so in order to become an 'investors' market reflecting reality, it would have to go a lot lower still. of course it won't do so in one go, we'll get big rallies along the way. but bear markets often bring stocks back into deeply UNDERVALUED territory, not just 'fair value' territory. note in connection with this that in the past, NAZ bear trough p/e's of 8 have been seen. for a time it was even argued that tech stocks deserve LOWER p/e's than other sectors, since the risk of obsolescence has to be priced in. |
