Pruguy
You assert that We are, IMHO, in a new era....more money and participation in the market than ever before, therefor traditional valuation models are inherently not accurated unless they have adjusted for this new paradigm...
If we're talking about the market in general, rather than Internet stocks or AOL, there certainly is more money and participation in the market than ever before. I saw something the other day about Americans, for the first time, having more of their net worth in the market than in real estate. I would suggest that the inflow from the boomers will keep the market more or less overvalued until sometime in the 20-teens when the heaviest withdrawals by boomer will probably make the market sell undervalued for quite a while.
That said, there is overvalued and way overvalued. Currently, the P/E on the S&P 500 is over 33. To put that in perspective, imagine I were selling you a job that paid $50,000 a year. Would you pay $1,650.000 for that $50,000 job? I doubt it. Also, earnings fell last year--oops. And interest rates are inching up. Now, assume Asia recovers, Asian demand for both oil and money rises causing higher oil prices and higher money costs. With US unemployment very low, that's a prescription for inflation and Fed interest rate increases--at a time when the market is richly valued and, IMO, vulnerable. If you do the math, you'll discover that even a 25% pullback would leave the market somewhat overvalued. "It's different this time," has historically been the kiss of death for markets.
Best,
--Steve
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