Jan

17

PE, from Alston Mabry

January 17, 2014 |

 Since you're talking about PEs, I will crosspost this bit:

Listening to Ed Hyman on Wealthtrack. Hyman says he thinks 2013 was like 1996 and that the next few years may turn out to be like the late 90s, as in: +20%, then +30%, +27%, +20% - he specified those percentages - which would mean for the S&P:

year close
2013: 1848
2014: 2218
2015: 2883
2016: 3661
2017: 4394

If you also plug in the earnings growth %'s from the 1998-2000, you get these stats for the S&P:

year: earnings, pe
2013: 107.45, 17.2
2014: 116.60, 19.0
2015: 117.08, 24.6
2016: 136.67, 26.8
2017: 148.44, 29.6

Considering Ed Hyman's comparison to 1996, one can't help but think, "yes, but"…back then we were looking ahead at the interweb and all its spinoffs, and investors thought tech companies would post astonishing future earnings, resulting in the fact that in early 2000, the top 20 firms in the QQQ had a combined PE ratio of 83. The future looked bright.

In the current world, what big factors could drive up the market PE to something like 30, as in the previous post? Two things come to mind in the macro sense:

1. "Developing" countries, especially India and SE Asia, really loosen up the regs and start to take off at an even steeper rate of ascent. Global GDP follows and grows at twice its "normal" rate.

2. A period of serious inflation.

What else?

Gary Rogan writes: 

Being able to map this year on some other years for the purposes of predicting the next few years sounds like wishful thinking. Multi-decade returns from this point on are likely to be subdued because this is somewhere between a "fairly valued" and relatively expensive market. This means little in the next few years, which are relatively "short term" for this purpose, and nobody really knows whether trend following or trend reversals will predominate. And since a number of surprises that will affect the treasury rates are in store, some of which will depend on the actions of a few men and one women, these short-term guesses are likely to remain nothing but guesses. 


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