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Politics : Ask Michael Burke

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To: Knighty Tin who wrote (52603)	3/19/1999 1:08:00 PM
From: Peter Singleton	Read Replies (1) of 132070

MB, that's why I like John Hussman's adjusted P/E's. He uses peak period P/E's to assess market valuation, to correct for these business cycle anomalies in reported P/E's. There's an investment adviser named Bob Bronson who posts regularly on LongWaves, who makes the point that secular changes in markets are rarely (never?) asymptotic ... in that they don't correct by reverting to the mean, they correct by swinging pendulum-like to trough values. This means instead of stock prices correcting to a P/E of 15 or so (hmmm ... can you say 60% decline???), a full correction would be to historic trough values c. 7 or so (I don't even want to do the math on that one!). Which gets me to one of the big unknowns. Can a market decline be arrested after reverting to the mean? The Fed believes it can, and can look to 1987 for evidence that it can. History says, not likely, not indefinitely. If the Austrians are right, the current Washington DC / Wall Street masters of the universe are no more able to stop the tide than King Canute was. Peter

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