gold, page-32858

In 1929 interest rate had moved from 5 percent to 6 percent before the September crash of that year in markets. I see equity markets competing for income (interest) return in capital. So a P/E of 20 in equities at the time would be a 5 percent income return. A P/E over that would bring in a lower income percent return in capital and thus the elevated P/E ratio at the time ensured the stock markets destruction.

Today, some on the bull side of the fence may argue with US interest rates at 1 percent equity P/E's of 30 would equate to a return in share capital of 3.33 percent which is still worth the punt over money markets. One could even argue that P/E's over 50 would still be double the percent return on money markets 1 percent.

The risk is that the Fed raise rates to the point where the scales tip and the return in equities on capital as an income percentage is lower that the cash rate they set.

It's whether the market ses economic conditions reducing company earnings as the Fed doggedly raises rates until hey destroy the equity market but many argue the Fed's central bank buddies are buying US equities so what the hell is their plan ?

JFI