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To: Oeconomicus who wrote (130958)	9/7/2001 3:53:22 PM
From: craig crawford	Respond to of 164684

>> Craig, while I agree that 1982 valuations were extremely low, it's worth noting that few thought so at the time << actually people knew valuations were low, they were just scared that they would go even lower. just as today i know that valuations for commodities are very low, although i am scared they could plummet even further. i guess i will miss the bottom and have to play them when the trend has changed for the better. >> An important difference between then and now, however, is the level of interest rates and inflation (yes, I know you are expecting hyperinflation in the coming depression). As I'm sure you know, lower rates (assuming they are sustainable, within a range of Fed tinkering, because the prospects for renewed inflation are minimal) justify higher PEs simply because the "P" is the present value of future cash flows while the "E" is, at the time of measurement, a constant. << this is my whole point. back in 1982 people couldn't imagine interest rates coming down, even after commodity prices had topped and were falling and other positive factors were staring them in the face. height of pessimism at a major inflection point. flash to today, when no one can imagine inflation ever coming back and rates keep falling. the height of skepticism about inflation and surging interest rates is the same as it was in 1982, only the opposite. today 90% of economic forecasters said they do not see inflation as a threat or a problem. all this in the face of fundamentals which are warning that inflation could be on the upswing in the coming years. >> There is no absolute, "truly cheap" level for PEs. What level of PEs is "truly cheap" changes with interest rates << obviously one of my main points is that i think rates are set to go much higher in the coming years. as for the points you made about predicting earnings, i think rising interest rates and rising commodity prices will put a crimp on earnings, so i don't expect the E in PE to grow either.