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Politics : Ask Michael Burke
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To: Michael Bakunin who wrote (54798)4/6/1999 3:41:00 PM
From: Knighty Tin  Read Replies (5) of 132070
 
mb, It is also a "forecast" pe ratio. Since those forecasts of earnings are almost certainly too high, as Gillette proved last night, the pe ratio is even higher than that. So far, the intellectual reasoning behind the rise in stock pe ratios has been two-fold: 1. Growing eps. Last year eps were down and the market hit record levels, so that has proven to be a scam. 2. Lower interest rates. Bond rates are approaching a nearly full percent hiccup since their lows after AG went bonkers with short term rate cuts. That is no longer a viable argument.

Basically, there is no logic for the rise in pe ratios. They are going up because debt has been easy and abundant and speculation on margin has been rewarded by an enabling Federal Reserve. Does the Fed want to continue to accomodate the market mania? Of course. Will they be able to do so with higher bond rates, lower corporate profits, and a puny dollar? Don't think so.

MB
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