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Strategies & Market Trends : Zeev's Turnips - No Politics -- Ignore unavailable to you. Want to Upgrade?

To: Zeev Hed who wrote (14059)	12/18/2001 4:48:44 PM
From: NOW	Read Replies (2) \| Respond to of 99280

"Over long periods nominal earnings growth moves reliably with the level of inflation. This means that when inflation is lower so is expected future earnings growth. The lower discount rates alone are indeed good for current valuations, but they come with lower expected future earnings growth, and that is not good. In fact, historically these effects are pretty much offsetting. Getting excited about low discount rates, while ignoring lower than normal growth, is Wall Street trying to have its cake and eat it too (actually, it's them trying to have your cake and eat it too). This mistake is often called "money illusion", comparing a nominal number like interest rates to a "real" number like P/E. However, even considering that it’s probably misguided, there is indeed a strong historical tendency to see high market P/Es when inflation/interest rates are low. The overwhelming evidence is that this is an error that reverses, and if you are a long-term investor (and who doesn't claim to be a long term investor) buying the market at a very high P/E is a bad idea viewed over the next decade regardless of starting interest rates or inflation." aqrcapital.com