i recommend you guys read this...

Special Report
ABN-AMRO MORGANS ANALYST MICHAEL KNOX SEES FAIR VALUE AT 6347

ABN-AMRO Morgans' respected analyst Michael Knox in a closely reasoned report put out today says while the fall in the US market is rational, the parallel fall in the Australian market is overdone.
Michael says anyone glancing at the fall in operating earnings per share for the S&P 500 from their peak in 2006 to their sharp decline currently "would think 3 things: recession, recession and recession".
He says the similarity between the recent decline in earnings in the US and the decline in earnings in the recession in 2001 are too apparent to avoid identification. "Our view is that the US market is merely acting rationally to discount the possibility of recession" Michael says in the report.

He adds, "The situation with earnings is quite different in Australia. Whereas the US economy is weak, the Australian economy is strong. .. Our measure of operating earnings for the Australian equities market grew some 20 pct in calendar 2007. We expect it to grow some 15 pct in calendar 2008. We have positive earnings growth in Australia. The US has negative earnings growth. Our fundamentals are much better than theirs…
"Our model of the Australian equities market based on earnings per share and bond yield explains 96 pct of monthly variation over the period since March 1992. Our model currently tells us that the fair value of the ASX200 on January 21 was 6347. This means that the market for the ASX200 on January 21 closed some 1160 points below fair value. .. Yesterday, the Australian equities market closed some 17 pct below fair value … it is far from obvious that such a large level of discount is rational in the circumstances of the Australian economy…"

Michael concludes, "The sharp fall in the US equities market of 16.4 pct over the period from October 9 2007 to January 22 2007 is rational. It is a rational response to decline in US operating earnings over the last 2 quarters of 2007 by an estimated 21 pct .. We may continue to discount a US recession for some period. However experience tells us that by the time we reach the second half of calendar 2008, it is likely that we will have a return to fair value".

ends