I would like to add that I agree that higher PE ratios are justified by lower interest rates and inflation. I have been willing to pay up somewhat in this cycle. However, there has never been a case in history where PE ratios in general have sustained levels like these. In fact there is only one other period in American history in which PE ratios got past 20 for non-depressed earnings. That was 1987. Even in 1929, when the inflation rate was 0% and long bonds were yielding 3.5% the PE ratio was only 19 as opposed to the 22X on the Dow and 26X on the S&P that we have now.
As for increased revenues vs flat capital spending. Investment Capital spending is generally done in clusters. There was such a cluster in the late 80's and early 90's. I suspect that is was that investment that produced the revenue and profit growth for this business cycle. It is not so much that more profits are being achieved with less investment during the 90's. Therefore, I don't believe that the capital spending budgets of the late 80's are comparable with the present because the next cluster has not occurred yet. I cannot be sure, but I suspect that there will be another such cluster in the not so distant future. Capital spending growth is simply not smooth. There has also been a great deal of mergers and buy-outs done in the 90's instead of capital spending. Companies are using stock and cash to buy factories etc...instead of building them. This also makes the comparisons in aggregate capital spending very difficult and somewhat suspect.
As for companies being managed better. I suspect that this is true to some degree also. In some cases it would represent a reason for expecting less cyclical earnings comparisons. This justifies slightly higher prices. I said "I suspect" because there may be a downside to various inventory practices that exist at present that just haven't been exposed yet. In general though the U.S is doing a better job.
On the flip side, if one looks at those companies like drugs, foods, beverages, confectionery etc.. and other companies that were never considered cyclical or economically sensitive to begin with, they are mostly selling at historic PE ratios despite generally the same wonderful prospects that have had for the last 35 years. Some, despite their high growth at present, are growing more slowly than in the 60's but selling at higher prices. This suggest excess.
Lastly, If the economy is somehow different than the past, then the prices already reflect it. Value Investing is about margin of safety.
If the most optimistic among us are correct, there is no margin of safety in the current aggregate prices. If those from "Missouri" turn out to be correct, then there is massive overvaluation in many sectors.
Only time will tell.
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