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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Knighty Tin who wrote (57215)	4/24/1999 11:45:00 AM
From: Freedom Fighter	Read Replies (2) \| Respond to of 132070

Mike, I enjoyed the Ken Safian article in Barrons this week. I think he made a lot of interesting points. But I have a few problems with the idea that the aggregate PE is so high now because the index is now a growth index instead of representative of the market as a whole. 1. If it is now a growth index, then why was the peak to peak earning growth for this cycle right in line with the long term average for the S&P500 despite the lower interest rate tail wind and steadily declining quality of earnings? 2. While a portfolio of companies that is expected to grow rapidly will sell at a higher PE than a group of cyclicals, it assumes that one can put together a portfolio of 500 of the largest companies in America and in aggregate they will be able to grow earnings at rates similar to the past. That seems unlikely as the S&P500 makes up a large share of all economic activity and it's a stretch to think that as a group they can grow profits at a greater rate than the economy for long. Some past rapid growers will fade or disappoint. 3. A company by company comparison shows that many growth components of the S&P500 like drugs, technology, some consumer stocks and others are selling at all time high PEs even compared to the 60s and certainly compared to their average level. Perhaps there's some truth to the index makeup idea. But it does not explain a PE of 37 by any stretch! Wayne