Had a theory today. If the US$ stays low for the next half year or so, could that the last piece of the puzzle for a recovery in stock markets around the world?
Currently Europe is on P/Es of about 14, but the US is still around 20 or higher. I would have thought, no big recovery in share prices until the USA P/Es come down to something more reasonable.
So now say the low US$ means better profits for international companies like Microsoft, GE, Cisco etc. And the P/Es come down a bit over there.
That would be an easy way out for the P/E ratios. Much better for investors if the E goes up, instead of the P going down.
I might be stretching a bit now, but let's imagine the US consumer starts to pay down a bit of debt, being faced as they are with higher import prices and uncertain climate.
The above leads to higher share valuations in the US. This allows the rest of the world to advance as well.
So, does that scenario sound feasible? Also, where does it leave Australia, with our P/Es already around 20, higher interest rates and a strong dollar starting to flow through into earnings over the rest of this year.
