Comments on: UPDATING THE MARKET’S PE RATIO http://pragcap.com/updating-the-markets-pe-ratio Sat, 26 May 2012 12:51:06 +0000 hourly 1 http://wordpress.org/?v=3.3.2 By: John Mc http://pragcap.com/updating-the-markets-pe-ratio/comment-page-1#comment-19083 John Mc Sun, 13 Jun 2010 23:27:37 +0000 http://pragcap.com/?p=22571#comment-19083 Since forward expectations have, at least in the past 50 years, always been made within the context of an inflationary background, is this chart even relevant? If, as TPC and a few others have been saying, we are in the midst of deflation, who says that an 18 PE represents a low? Valuation in inflationary environments and deflationary environments is an exercise in comparing apples and oranges it would seem. If we're truly experiencing deflation, than an 18 PE is wickedly high in my opinion. Since forward expectations have, at least in the past 50 years, always been made within the context of an inflationary background, is this chart even relevant? If, as TPC and a few others have been saying, we are in the midst of deflation, who says that an 18 PE represents a low? Valuation in inflationary environments and deflationary environments is an exercise in comparing apples and oranges it would seem.

If we’re truly experiencing deflation, than an 18 PE is wickedly high in my opinion.

]]> By: jt26 http://pragcap.com/updating-the-markets-pe-ratio/comment-page-1#comment-19055 jt26 Sun, 13 Jun 2010 13:43:05 +0000 http://pragcap.com/?p=22571#comment-19055 For 1980-2010, from the chart it looks like PE expansion contributed ~4%/year, and ~4% from profit increases. The PE expansion is probably also directly related to the interest rates. GDP growth was probably 1.5%, and the rest of the profitability was the tailwind of declining interest rates/increase in debt of. If you believe the base case of the end of the "great moderation" but no currency/fiscal crisis, i.e. range bound interest rates, then PE expansion and flat debt/GDP contribution to returns is 0. If you believe, China/India/Brazil will buy all their imports from the US and they are growing at 10%/year, then globalization may add 1%. The market as a whole doesn't seem to offer much of a risk premium over 5-10 yr Tsys at a PE of ~20. Of course your projections may differ, these results used a professional driver on a closed track ... For 1980-2010, from the chart it looks like PE expansion contributed ~4%/year, and ~4% from profit increases. The PE expansion is probably also directly related to the interest rates. GDP growth was probably 1.5%, and the rest of the profitability was the tailwind of declining interest rates/increase in debt of. If you believe the base case of the end of the “great moderation” but no currency/fiscal crisis, i.e. range bound interest rates, then PE expansion and flat debt/GDP contribution to returns is 0. If you believe, China/India/Brazil will buy all their imports from the US and they are growing at 10%/year, then globalization may add 1%. The market as a whole doesn’t seem to offer much of a risk premium over 5-10 yr Tsys at a PE of ~20. Of course your projections may differ, these results used a professional driver on a closed track …

]]> By: ovtrading http://pragcap.com/updating-the-markets-pe-ratio/comment-page-1#comment-19047 ovtrading Sun, 13 Jun 2010 11:32:23 +0000 http://pragcap.com/?p=22571#comment-19047 AAPL's forward PE is 16. Bubble? AAPL’s forward PE is 16. Bubble?

]]> By: tiger http://pragcap.com/updating-the-markets-pe-ratio/comment-page-1#comment-19029 tiger Sun, 13 Jun 2010 06:19:08 +0000 http://pragcap.com/?p=22571#comment-19029 talking abt PE..... look at CRM/VMWARE/AAPL/NTFLX/BIDU, who says tech bubble burst in 1919 talking abt PE….. look at CRM/VMWARE/AAPL/NTFLX/BIDU, who says tech bubble burst in 1919

]]> By: Abhishek http://pragcap.com/updating-the-markets-pe-ratio/comment-page-1#comment-19028 Abhishek Sun, 13 Jun 2010 05:46:49 +0000 http://pragcap.com/?p=22571#comment-19028 Whether the markets are expensive or not depends on your perspective that the 1990s were an aberration of high P/Es or were they the start of a secular trend of high multiples.I would stick with the former. Whether the markets are expensive or not depends on your perspective that the 1990s were an aberration of high P/Es or were they the start of a secular trend of high multiples.I would stick with the former.

]]>