brianoh

S&P Set for 50%+ Gains? Not So Fast, UBS

The problem that we face as we all know is inflated asset prices being restored to more normal levels. In 2001, US stocks were valued at a PE ratio of 30 (Dow). For that to be sustained, other income-earning assets had to be inflated to a similar level (ie. R/E). Greenspan caused these problems with cheap plentiful credit, and the resulting bursting of the R/E bubble followed by stocks. Historically, stocks have had PE ratios circa 15, not 30. I still hear some economic commentators talking in terms of PER 30. Obviously that does not reward investment and price risk. In a recession, the DOW deserves a price of something like 6,000 and in normal times, perhaps 7,000 to 8,000. Mister Market is simply re-pricing the inflated assets. The impact of that re-pricing is obviously impacting the inflated and cheap liquidity levels that were based on those inflated asset prices (assets prices fall and must be liquidated). Greenspan and his cronies obviously caused these problems, and that “era of largest wealth creation” is being shown for what it really was – asset-inflation. Pretty simple really. As the Fed attempts to re-inflate those asset prices it simply causes a bubble in bonds, because people have already been conned once. One of the Fed mandates is price stability and they have simply applied that selectively to consumer prices and cheap imports have sustained that. What the US needs is some proper economists to stand up and be counted. I have not seen much evidence of that. It is all prop-up, bail-out, and mail-out, and funded by the people that save money to rescue the people that have debased their cash.