<<P/Es, Asness says about the price-earnings ratios that are used to evaluate the price of a company's shares, "are above any time in history prior to the 1998-2000 bubble, including the peak before 1929's crash." His research puts price-earnings for the benchmark S&P 500 at 26 for the 12 months ended Sept. 30. "In other words, excluding the 1999-2000 bubble, we are currently in the 100th percentile. Counting the bubble, only 2 percent of the time since 1881 have market P/Es been higher than today's values. Cheap? I think not," he says.
Asness examines the price-earnings phenomenon several ways. In one analysis, he uses a 10-year average of so-called real earnings, or earnings adjusted for inflation. Such a chart presumably smoothes out the one-year peaks and valleys of corporate earnings. His conclusion?
"On this scale we're now a tad cheaper than before Black Monday in 1929, but I don't think that's the tag line Abby Cohen and Ed Kerschner want to use to tout stocks," he says, referring to two of the most bullish Wall Street strategists. "Can you imagine yelling, 'Buy, buy, we're slightly cheaper than right before the crash of '29.' Nope, excluding the 1998-2000 bubble, and the period right before October of 1929, we still have the most expensive stock market in recorded history.">>
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