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Strategies & Market Trends : Booms, Busts, and Recoveries
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To: 200ma who wrote (4863)6/12/2001 1:18:07 PM
From: pater tenebrarum  Read Replies (2) of 74559
 
that depends. among other things, it depends on how bad the economic situation gets. p/e's may at some point cease to be a useful indicator - for instance, at the summer 1932 low in the Dow, the Dow's average p/e was for the first time ever infinitely large, as the earnings of the industrials were negative. but the dividend yield was over 10%.

another variable is the TYPE of bear market one is in. if this is a supercycle bear, it will consist of several cyclical bear markets that (over)anticipate the recessions coming our way. assuming earnings stay positive, p/e's should progressively work their way down. at the end of the bear market we may even see a situation where the fundamentals are already looking good/better, and yet stock prices will still be depressed due to the negative psychology the bear will engender. at that point we should see below average p/e's.

the current (cyclical) bear cycle will likely end in 2002/3. but the supercycle should last a lot longer. that said, although i believe it is a supercycle , secular bear, i can't prove it yet, and it's not a certainty. many strategists disagree with that view, and believe the secular bull to be intact. if that's true, i still would expect it to end soon - perhaps with a few indices (Dow/NYA) attaining marginal new highs.
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