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Earl
I have been taking some to consider your comments.
It seems to me there are three issues which are important to consider
when trying to decide whether current levels are appropriate, or
whether, as you suggested, there is a lot further to go. They are:
o interest rates
o an assumption of normal growth for the intermediate term
o the ability to build instead of buy
Current levels are reflective of 10-15% earnings growth at present
interest rate levels. If prices are 'too high', this implies an
expectation of higher rates, lower growth, or both. IOW, prices do not
seem to be discounting any worsening of the broader economic
environment. A good example is PG at a PE of 36.
Longer term, it seems to me that it is much cheaper to build than buy,
ie, to start a business from scratch rather than buy an existing
business. This may have a depressing effect on stock prices, since it
will suppress M&A activity.
Just a few thoughts on a sad day...
Regards
DanG
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