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Politics : Formerly About Applied Materials

AMAT 233.63

-3.0%

3:59 PM EST

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To: Hank Stamper who wrote (53988)	10/9/2001 3:43:50 PM
From: Kirk ©	Read Replies (2) of 70976

PE: How is it possible that the p/e could get to 10 or lower? Through a series of bear/bull cycles in which each cycle progressively lowers the high and low p/e. In this senario, the last bear bottom brings us to the range of the historical low p/e. This is the opposite side of the coin of the expanding p/e ratios we saw develop between 1982 and 2000. How long will that take? I.e., how many bear/bull cycles will we see before we hit the final, final bottom with a p/e close to 10? I bought my first home in 1984 and I couldn't get a fixed rate as they were about 17%... but I got a variable for 14% that was tied to the 1yr T-Bill or 11th dist cost of funds. IF you use an earnings yield model for "fair value" as Greenspan does, then you take the inverse of the long term bond rate to get the fair value P/E. I have 10yr=4.51% and 5.31 for the 30 yr. IF you just ratio 14%/4.51%, you get a factor of 3.1 for the longer bonds and the 30 yr is 17%/5.3%=3.2 So if the bear bottom in 82 was with a p/e of 7, then it might makes sense today to be 3.1 times higher or 21.7! Of course, we could overshoot this on the negative side... Kirk PS the next questions will compare tax rates and quality of earnings between then and now. Lower taxes gives a higher expectation for future value so that also adds to acceptable p/e or you could argue that is implied in the long bond price.

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