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Politics : High Tolerance Plasticity
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To: cnyndwllr who wrote (11614)1/10/2002 8:56:41 AM
From: MetalTrader  Read Replies (3) of 23153
 
if you are taking a page out of that book you have to read the entire chapter....

In your post you are following the line of reasoning that I believe is misplaced and responsible for what I see as an excessive run-up. That is a direct correlation between the economy and the market. The momentary lapses in that correlation can last a decade or so making it worth viewing with a critical eye.

I believe "money" is looking so closely at the macro issues it is neglecting at it's peril the valuation problem. The last 20 yrs of the market are the result of not simply baby boomer money, but a strong dollar and falling interest and inflation rates. The peg ratios have expanded because in a period of falling inflation future earnings become more valuable. The growth of the market has been skewed to multiple expansion and that is what makes a bull market.

Now ask yourself if inflation and interest rates are nearly as low as they can go without going deflationary and multiple expansion no longer can be an engine to increase market valuation. What happens? All valuation change falls directly onto earnings without any help from P/E multiple increase. In other words, in principle, PEG ratios should move closer to 1.

This is purely a momentum, liquidity driven market, but in a media environment which is trumpeting the all clear signal loudly I see early money sneaking out and gold breaking up. So play the momentum but remember it cuts both ways and quickly.

mt
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