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Pastimes : Ask Mohan about the Market
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To: Mark Ivan who wrote (17052)11/9/1998 8:25:00 PM
From: Zeev Hed  Read Replies (3) of 18056
 
Mark, my reasoning is that it will take the S&P about five years to grow its earnings to justify the 1100 to 1200 range (or the Dow 10000). The drive for the super valuations we had in the last three years was growth of the S&P earnings, this growth was induced by a number of factors, including amongst others, "down sizing" of US corporations (a lot of that source of increasing efficiencies is squeezed out), increasing efficiency by replacing labor with capital has also been implemented to a large extent. The driving force for growth in general was the creation of a vast middle class in the far east and the former Soviet Union, a dream that may take another five years or more to come back into play. Thus there are a lot of "fundamental" reasons to assume some reduction in the growth of earnings of the large corporations and PE of 30 on growth of 5% per year are going to become less and less acceptable. Another major drive has been excess liquidity, and I think that these excesses are still there and will create the bounces during the next five years of "rebalancng the bubble" in the equity markets.

Short term (and the put/call ratio is a very short term indicator) I think we will come down a little so we can go into a solid year end rally. The turnips see a possible break, while marginal of the highs in the DOW and S&P (sometime in January?), but I am starting to get some readings indicating that this might be a set up for actually breaching the lows of 7400 sometime late next spring (like May, early June).

Zeev
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