Mike,
I'm a couple of hundred posts behind on the thread, so someone may have pointed this out, already ...
Skeets,
Simple grade school math indicates a Dow of 2500 wouldn't be a big deal to get to. Simply with a P/E now of 33+ on the S&P, and historical mean of 14.5, reversion to the mean would drop the Dow to 4100. Assuming the Dow undershoots on P/E as you would expect in a secular bear market, a market P/E of c. 8 wouldn't be unusual from historical experience. Voila, Dow 2250. You don't need to factor in a hit from an adjustment due to earnings quality, or a hit from earnings declines in a recession to see a decline of 75% on the Dow from current levels.
This isn't a prediction, mind you, but it's hard to see what's different now that would lead a prudent person to think that historic mean and peak values no longer serve as reasonable guideposts for expected, future prices.
Now, how are folks going to feel if the Dow trades down to 2250, especially if we're in a recession, and folks are worried about their jobs? What kind of reverse wealth effect will there be when someone's $500K 401K account is now worth $125K, and they can no longer forecast they'll have adequate funds to retire in x years?
This is not particularly bearish, nor is it emotional ... like I said, it's grade school math. We'll only see in retrospect how a bubble market of historic dimension affects all of our reasoning. Makes you wonder why no one's taken our keys away. <g>
Peter |
