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At the last market bottom, after a bear rampage, the PE ratios were down around
6. There is still a long way to go to reach these levels. Also the majority of
the mutual funds closed their doors during that period. We haven't seen the
massive redemptions yet or the collapse of confidence. Those that increased
their mortgage amounts to buy stocks haven't paid the piper yet, but the number
of bankruptcies are on the rise. There are two ways to reduce PE ratios. One
is to reduce the price of the stock and the other is to increase earnings. Let
us see how this works out. Ira.
Earl Adamy wrote:
> 1) The stock market gambling was in no way limited to the 30 something's, it
> deeply infected the baby boomers, near-retired, and retired. These people
> talked of nothing but stocks at every gathering. Now they shut their eyes to
> what is happening in the market, don't want to talk about stocks, and fully
> expect that their winnings will be restored with a bit of patience.
>
> 2) The bubble was in no way limited to the NASDAQ, it was just most evident
> in the NASDAQ. The blue chips were and very much remain part of the bubble.
> By any gauge of valuation, the blue chips remain valued at historically high
> levels. We are now learning that much of the productivity and earnings of
> the past 5 years were fictional as extraordinary charges wipe away years of
> "profits".
>
> Attached find PE and Yield statistics from this week's Barron's Market Lab
> which suggest that the Dow Jones blue chips remain at lofty levels with big
> haircuts ahead in prices, earnings, and (especially) dividends:
>
> a) Market to Book on DJIA remains at nearly 8x
> b) DJIA PE ratio is still 24+
> c) PE ratio on DJTA is 348
> d) DJTA dividends are nearly 5x earnings
> e) DJUA PE ratio is 48
> f) DJUA dividends are nearly 2x earnings
>
> Yes, the pendulum will swing far to the other extreme ... very far. I expect
> that when the smoke clears some years from now that sustainable dividend
> yields on blue chip stocks will once again exceed the yields on long term
> treasuries.
>
> Earl
>
> --
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