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Strategies & Market Trends : The Stock Market Bubble -- Ignore unavailable to you. Want to Upgrade?

To: Terry Whitman who wrote (3198)	5/31/2000 9:12:00 AM
From: Wren	Respond to of 3339

I remember in the mid 1970s, two or three years after the crash of the Nifty Fifty in 1972/73, that there were a lot of quality large company stocks selling at P/Es of 6, 7, and 8. Of course, those P/Es were the over-reaction on the down side that followed the over-the-top run up in the market in the first years of the 1970s. I have in my archives an October 1996 article from Barrons that shows the P/E range of several stocks from 1992 to October of 1996: Intel 8-22; Citicorp 8-13; GE 13-22; McDonalds 15-24; Merck 15-25; Philip Morris 9-19; Microsoft 20-49 Fannie Mae 9-15; S&P500 16-26 It is certainly not unrealistic to believe that P/Es can return to much lower levels if conditions change to become similar to those times.

To: Terry Whitman who wrote (3198)	5/31/2000 10:34:00 AM
From: Daniel Chisholm	Respond to of 3339

Terry, thanks for the numbers. The reported DJIA earnings you give are $502.67. What if this was over-reported and/or cyclically high, and a more representative figure was $330? (i.e., what if reported earnings overstated sustainable / mid-cycle / gimmick-free / "owner" earnings by about 50%)? Furthermore, what if the P/E attributed to this was, say, 12? This would be in line with a long term discount rate of about 8%, a businesslike (but not a "sell-stocks-now,please-panic-faster-than-the-next-guy") sort of valuation. That would give a DJIA of about 4,000, and a dividend yield of about 4.1%. This does not seem like a ridiculous level to me. In fact it seems quite reasonable -- reasonable enough to start thinking about buying, perhaps buying big. Not on margin though (at this level), because you never know how much others might panic. - Daniel