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To: RetiredNow who wrote (67035)	2/11/2005 10:11:02 AM
From: GVTucker	Read Replies (1) \| Respond to of 77400

Top decile. I don't buy it, unless you can post some proof. I don't have a linkable source, sorry. The source is Cambridge Associates, which has an excellent database of historical market information. The data used goes back to 1920. Anyway, PEs taken in isolation don't tell you much. You need to look at it as it relates to bond rates, because money finds its way to the best returns. I strongly disagree. When you're looking for future market return, bond rates don't mean anything. Yes, higher rates can drive PE ratios down. That just provides opportunity. When you look at historical returns, the best returns are from low PE environments. It doesn't matter if high interest rates caused that low PE environment, the opportunity is still there. Granted, PE isn't the end all. Low PE correlates OK to future market returns, but there are better indicators, if that's what you're looking for. The firm of Grantham Mayo Van Otterloo (GMO) does excellent statistical studies. Via Robert Shiller, they found that if you take 10 years of earnings after inflation and did a ratio of that to price, it was even a better indicator of future market returns. For the best correlation to earnings, Tobin's Q (the replacement cost of the market) has worked best. When the market has been at its cheapest valuation (i.e. bottom 20%) using Tobin's Q, subsequent ten year returns have averaged 12.2%. When the market has been in the upper quintile, subsequent returns have averaged 1.2% annually. We're still in the upper quintile.

To: RetiredNow who wrote (67035)	2/11/2005 10:30:19 AM
From: Dave	Read Replies (1) \| Respond to of 77400

Mindmeld, Unless we're in a new environment where both bonds and stock do poorly This statement, which admittedly I have somewhat taken out of context, really hits the nail on the head. Several Equity and Fixed Income Managers that I read suggest that we are looking at "less than average" returns over the coming years. One of the reasons why the increase in CapEx hypothesis which will create further earnings growth may not be valid is our current Capacity Utilization around 78 to 79%. For an economy "humming", the utilization is typically in the mid to high 80s. Since utilization is on the relative "low" side, it is questionable whether companies will invest in their businesses. Of course, this could also create a wave of M&A activity wherein capacity becomes mothballed. The future is always so uncertain. Dave