Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (64592)	6/26/2006 2:05:12 PM
From: ild	Read Replies (1) \| Respond to of 110194

Date: Mon Jun 26 2006 13:16 trotsky (Earl@Dabchick's index) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved if i'm not mistaken, Dabchick's world gold price is an average of the gold price in different currencies. with 'real price' i mean gold's ratio to other commodities. a good proxy for this is the gold/copper ratio, which has been declining since late 2003 ( almost exactly concurrent with the peak of the yield curve steepening from '00-'03 ) . in a true gold bull market phase, this ratio should be rising ( i.e., gold's price relative to copper should be increasing ) . iow, the 2005-2006 gold rally is largely a reflection of excess liquidity spilling into gold, whereas the 2000-2003 rally was the real McCoy.

To: ild who wrote (64592)	6/26/2006 5:21:37 PM
From: benwood	Read Replies (1) \| Respond to of 110194

If you look at the DOW in the last big expansion from 1982 to 2000 or so, the index increased from about 800 to 11,900, or roughly 15x. The expansion of the P/E was from about 8 to about 44 during that span, or about 5.5x. That means that for the moving-target (survivor bias) index, the gain from earnings would be 15/5.5 = 2.7x. So the gain from the expansion of P/E from 1982 to 2000 was roughly double the gain from earnings increases, not including any consideration for growing companies being swapped into the index. Conversely, earnings expanded about 2.3x (if my rough calculations are correct) from ~1965 to ~1982 yet the P/E decline significantly from about 23 to about 8. So that down cycle saw almost the same overall earnings growth of the index stocks (again a moving target), yet with the P/E collapse the index actually declined. If my math is correct, then the '82-'00 period was only about 16% better for earnings growth than the '65-'82 period, yet the index increased 1500% rather than decreased 20%. This ignores dividends but the overall difference between the two periods would not be that great esp. compared to the index valuations themselves. Based on that, it does seem like the P/E expansion/contraction is by far the biggest driver. Currently, we are still something like 1.5x the long term mean.