A p/e of 15.2 is not a bubble. The crash in 2007-2008 came from structural problems in the banking sector. Those problems are not present at this time. Yes, the Fed has a big problem on their hands but it will take a while longer before it causes major problems IMO. 4/7/14
Now factor into that "E" the following items that we seem, oh so willing, to assume will continue forever and therefore deserve a multiple applied to them: 1. The tax rate on S&P 500 companies has dropped from 35% to 25% complements of Ireland, Switzerland and much of the Caribbean being ever so willing to park profits and royalties. Apple , Caterpillar et al wish to thank them for their generosity. We can safely assume that rate will continue dropping...can't we? 2. Extra-ordinary items which strangely are always losses are tracking around 50% above their long-term trend rate and account for about 15% of income in theoe forward operating earnings. 3. The operating earnings estimates are still about 2 -3 times the level of expected nominal GDP growth, but I guess that's possible isn't it? 4. Around 50 % of earnings growth since the bottom of the current cycle has come from reduction in loan loss reserves and reduction in interest expense. Surely we can expect that to continue and therefore it easily justifies a 15 plus multiple. 4/7/14
P/E ratios on stock indexes are useless. Why? It doesn't take into account the elevated profit margins. You need to normalize P/E ratios to make them useful. 4/7/14
Mattco
