"GERARD MINACK: No, I think people are far too optimistic. I'm not even sure they know how far they're going to drop in the near term. But a reflection of that optimism is we now have the S and P 500, which is their benchmark, on the highest trailing price earnings ratio we have ever seen.
ALAN KOHLER: What is it?
GERARD MINACK: It's at 56 times and we've got data all the way back to 1880, so the market on that one measure has never been more expensive.
ALAN KOHLER: So what does that tell you?
GERARD MINACK: That's telling you that people go yes, earnings are dropping, but there's a huge piece of elastic and it's going to snap very quickly so we can look over that valley to the next hill.
And I also think that hill that they are looking to, the upgrades, the up pick in earnings is far too high, if you exclude financials because there is a big cloud over those. The current consensus view that is earnings from this year to 2011 will jump about 45 per cent, which will take them to a new all time high and..."
I WOULD LIKE TO DISCUSS THE PE 56 CLAIM
pe is an indication of what the market is expecting in the future
at the moment investors are expecting that earnings will grow by 56%
Peg = 56/56% = 1
stocks are valued on the basis of earning going forward
price usually equals value ie hte should be a 1 to 1 relationship to be fair value
sometimes they get out of synch
price goes above true value sometimes below.
minacke is saying that the market is overvalued
he is saying that 56% growth is unreasonable or I think he says 45%
