Datasource2000

On a Return to Normalcy: Dow 8,500

Spot on! Using the S+P year end "as reported" earnings since 1930, earnings show a remarkably consistent trend. 6.4% - 6.5% growth.

Most importantly - every economic boom has peaked almost EXACTLY 6.4% above the previous one, and every economic bust has bottomed almost EXACTLY 6.4% higher than the previous.

If you graph year end S+P PRICES on top of the trend line channel for EARNINGS, it's the same exact chart...... lol, except for the timing.

Until the late 1990s, it held, but we went so much higher in prices, that now we have simply returned to normal.

My chart is showing normal as 14X that central tendency of earnings, what earnings would be if they never boomed, never busted. 14X AVERAGE, normalized earnings, as reported, trailing.

The market bottoms at 8X those normalized EPS, and peaks at 20X (until just recently, as the author wrote.)

FWIW, S+P has just lowered estimates for 2009, and the number is (again) almost exactly at the trough.

For 2008, this (theoretical) normalized EPS number is $67.84, meaning we are currently at 13.25 normalized earnings.

(I've published the simple chart at the above link. In case it doesn't work, try here: www.investorvillage.co...