Krazy P

Putting the Perception and Reality of the Financial Crisis Into Perspective

Chaos theory does help with an understanding of this situation. We are clearly in a period of chaos - which means that it is difficult to forecast the future. Stasis is a while off.I do believe that an analysis of fundamentals is also a good way to try to come up with some forecast. Humblemaster is right about the housing - some believe it will be at least 9 years before prices start back up. BRIC middle class demand is one shining light in the whole thing - but that will take time. The P/E ratio for the S&P 500 is around 15. With the economic outlook so bleak, I would think it would need to be closer to 10 to reflect future earnings prospects. That would mean a drop of up to 30% more, making the "bottom" for the Dow a lot lower than it is now (try 7,700 for the Dow). For example, in the 80's, the last bad recession, the S&P P/E ratio was BELOW 10 for a number of years. We really haven't had a correction on the DOW even close to a P/E ratio of 10 since after the 87 crash. I think it is very likely. That will have a huge negative wealth affect on consumption, making the recovery take a long, long time