Is The Market Under Or Over Valued?
October 4th 2008 20:54
(Click on image to enlarge)
Carl Swenlin has provided some excellent information to subscribers of his DecisionPoint.com. This is one of those times when you can look at a chart and get that "Aha!" feeling.
For me. I notice todays market looks a lot like the market back in 1968. That was the year I trained in New York to be a stockbroker. I was hired by Walston & Co. and their office was at the foot of Wall Street in the building that steps back from the river. I remember the professor who trained us for the Series 7 test saying, "Boys you will never see these levels again in your lifetime.
Over the next year 1000 proved to be formidable resistance and we dropped to 630. For 13 years we traded under 1000, finally breaking above that level in 1982! The reason we made no progress: the market was trading over 15 to 20 times earnings. When we bottomed in 1974, the market was trading at 10 times earnings and 6% yileds (it has been so long agom, it could have been 6 times earnings and 10% yields.) I do know the DJIA traded below book value.
Swenlin writes
I have applied red arrows to identify the periods where stocks were truly undervalued, sometimes mouth-wateringly so -- truly buying opportunities of a lifetime. As you can see, current prices are very overvalued, and possibly near the selling opportunity of a lifetime. To those who think this is the time to buy, I must ask, based upon what? Clearly, prices can rise even when stocks are overvalued, but current economic fundamentals makes that outcome a long shot.
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