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

To: Jim O'Hare who wrote (8880)	12/25/1998 7:40:00 PM
From: MrGreenJeans	Respond to of 42834

Jim I guess I was wondering why there should be an upper bound of 24.5 on P/E multiple expansion. My thinking is that the P/E multiple expansion is inversely proportional to interest rates. In my mind, there is an upper bound of 24.5 times on the market P/E. That is historically the highest, I believe, the market generally trades at during periods of optimistic economic conditions at least to date based on prospective operating earnings. No matter which way I look at it when the market trades at 24.5 times it is an expensive market where every economic fundamental must be favorable for the market to stay at those particular levels. In my mind, operating profits must rise for me to be 100% invested at levels that high. Until I see an indication that profits will be higher than $51.50 on the S and P 500 I will be at a lower than 100% fully invested equity position. Ultimately, every investor must decide at what levels of the market they are comfortable investing at and 24.5 times is not in my comfort zone. Currently, the Federal Reserve has a netural stance on rates meaning rates are as likely to go up as they are to go down. As for the "federal reserve", although they still do have considerable power in adjusting the cost of money, I think they are quickly losing that control. I will disagree with you on this point. The dominant currency in the world is the dollar and the Federal Reserve sets policy on the dollar. Trillions of dollars are moved around the world and trillions of other currencies are moved around the world in reaction to every nuance the Federal Reserve makes.