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Strategies & Market Trends : Bob Brinker: Market Savant & Radio Host -- Ignore unavailable to you. Want to Upgrade?

To: wooden ships who wrote (5951)	7/14/1998 10:10:00 PM
From: Alan Bell	Read Replies (1) \| Respond to of 42834

Balancing to the appropriate asset allocation is certainly sage advice in these volatile times. But pulling more than that from the market could cause one to follow the path of the bad news bears. When we think about the huge gains we have had because of PE ratio expansion over the past few years, we recognize that they aren't likely to continue. So the obvious answer is that there must be a bear market. But there is another alternative - a rise (though volatile) of high single digit gains which follow earnings growth. With interest rates being as low as they are, 8-10% annual equity growth looks pretty good. -- Alan

To: wooden ships who wrote (5951)	7/14/1998 10:11:00 PM
From: MrGreenJeans	Respond to of 42834

Are these PEs Sustainable? Yes, they probably are sustainable for a longer period of time than I think but I have no doubt that at some point they will fall back into more normal historical ranges depressing equity prices. I work with a group of people who often comment on how low a certain price can go or how high a certain price can go and they usually conclude that prices cannot go much lower or much higher when they make a forecast. My response to them has always been prices can go lower than you think and prices can go higher than you think. In an earlier post I wrote that three standard deviation moves on a probability distribution table is given a 0% chance of occurring and will not occur in one's lifetime according to probability theory but yet these moves occur more often than the probability table would suggest. These are the very moves more sophisticated(?) people examine and prepare for when investing, speculating or trading so as not to lose their stakes. It is interesting to note, depending on which financial management firm you ask that the 1987 crash was a 20 to 33 standard deviation move from what one would expect...clearly it was an impossible move...an unlikely move...but a move that happened nevertheless. No, I do not think their will be a crash but I am just pointing out that things do happen outside the norm of reasonable forecasts.