“Stocks Finally Start Looking Affordable”

That’s the title of this NY Times Economix entry today.  As I have discussed repeatedly of late, a key metric to watch is the overall P/E ratio.  The article agrees.  Using Schiller’s method of calculating the S&P P/E, it is down to 12.3 at today’s close, which makes the market undervalued by about 30%.

And, “when the p-e has been between 12 and 13 over the last 125 years or so, stocks have doubled over the next decade, on average. (Adjusting for inflation, they have risen almost 50 percent.)”.

But, in the 1930s and 1980s the P/E dropped all the way to 7.  So, we could be in for some more cliff diving.  “But long-term investors – and that describes most of us – should start to feel perfectly fine about buying stocks.”

I think it’s entirely premature to buy stocks.  But it may finally be too late to sell.  Although based on the number of panic calls I got today from clients, a new wave of panic selling may be forming.

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One response to ““Stocks Finally Start Looking Affordable”

  1. Snead Hearn

    So now what do we do? I spoke with someone in the financial business today (works for one of the big guys) who suggested that a portion of each of his last few paychecks and a portion of all of his future checks will go into CASH. I mean, CASH as in twenties, in an envelope, stashed in the gun safe CASH. That sounds like a pretty damning commentary on his view of our system!

    So, what to do with that cash now? There must be a zillion dollars on the sidelines right now, waiting for a reason to jump back into the game. I’d think that when that happens, the “markets” will shoot up. Does that make any sense? I mean, where is all the money now?

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