Hi Doug
Three points:
a) First your 25% decline figure based on the average SP P/E
in past WW2 years ifs highly artificial since these years
contain many period of high inflation (early 50s, late 60s
to mid 80s) for which P/Es were very low. If you look only
at low inflation periods (late 50s, early 60s), the current
P/Es are extremely reasonable, if not cheap, unless we are
at the start of a big recession.
b) I would not let the free market rhetoric of the current
era fool you. The entire apparatus of the post WW2 welfare
state is stronger than ever. This state came about to make
sure the great Depression would never reoccur, and if
you scratch the surface below the free market rhetoric,
you find Keynesianism everywhere. Through government
spending, tax cuts, political pressure for interest
rate cuts, inflation is the state of affairs that
comes the easiest to our system. It takes major policy
blunders (such as the Japanese tax hike at the beginning
of a recession last year) to create deflation. In fact,
I even think deflation is impossible in the US and European
economies. There are too many countercyclical programs
(unemployment insurance, etc...) that kick into high gear
as soon as we are enter a recession.
c) Regarding limtex's comments about this being the
worse bear market ever. This statement is so ridiculous,it
is not even worth responding to. Worse bear markets
would include not only 29, but also 73-74, and even 87!
Only the 90 bear market was milder.
Besides, the unemployment rate in the 30s reached 25%
It is not only 4,6%. Even if we enter a recession, I
have not heard a single person indicate unemployment
could go beyond 7 or 8%
Best regards,
Bernard Levy
PS: If I had to make a guess, I would say we are very
close to the bottom. The semiconductor stocks, which
have been in a horrible funk for about a year are
starting to show some signs of relative strength. |
