"On Friday, after lurching back and forth, the Standard & Poor’s 500-stock index closed at 899. That meant the five-year p-e ratio was just below 12. (The corporate earnings data isn’t all available yet, so this is an estimate.) It was last that low in late 1985. Over the past 100 years, the average p-e has been about 15.5.
If you use a 10-year p-e instead, stocks look somewhat more expensive — the ratio is 14, the lowest since 1988 but only a little lower than the 100-year average.
There are two things to keep in mind, in the event that you consider these ratios to be a sign that now is the time to buy. First, the p-e ratio typically falls well below its long-run average during a bust. It fell to about 6 in both the 1930s and early 1980s.
Second, remember that there are two components to the p-e ratio: the ‘p’ and the ‘e.’ Based on the kind of recession we may now be entering, it’s entirely reasonable to think that corporate earnings will fall, maybe significantly. That would mean that stocks would also have to fall just to keep the p-e ratio in its current place."
It appears we are nearing the bottom in the stock market...next the recession... lack of lending = lack of economic expansion = loss of jobs = cuts in consumer spending, etc. The real estate market is still estimated to continue falling, but at a slower rate until early 2009. The recession will probably be something like the one in the early 1980's about 18 to 24 months.
Start stocking up on spaghetti and jarred sauce. No new clothes for a while. And absolutely no new automobiles so make sure you change the oil.
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