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-- Posted Sunday, 30 November 2008 | Digg This Article | Source: GoldSeek.com
US stocks might have bounced off their lows but have only retreated to the fair value levels of 1991. Typically stock markets tend to over-correct, so we are not at the bottom yet, though it might not be that far away now. Warren Buffett’s mentor Benjamin Graham looked at stock prices against their 10-year average earnings per share to gauge value. On that reckoning stock prices are only sightly cheaper than their long-term average for the first time since 1991. Stocks have been overvalued for a long time. Down trendCould a long period of sub-average valuations follow for stocks? Perhaps but we clearly still have to find a bottom in stock prices first. They always over-correct on the way down, a reverse of the irrational exuberance of the upside. How long will that take? The most optimistic point to the spring next year but increasingly experts suggest the middle of next year might be the time to buy, presumably after people sell in May and go away. To support the Graham analysis you can also turn to the q-theory. This considers the market capitalization of a company compared to the net worth of its assets. But again we sadly only arrive at the fair value position, and there is no buying signal. Sell, sell, sellIn short, at this stage any rallies in stock markets should be seen as selling opportunities, if by mischance you still have US equity investments - and by implication most global stock markets will also follow this trend so lighten up there as well. This column posited 7,000 on the Dow and 3,300 for the FTSE at the start of the autumn, and we nearly got there. It looks like 2009 will see even lower index numbers, and even then it is going to be hard to call a true bottom recalling the 1930-32 down wave (see graph). How far US economic policy will offset the depressionary forces in place is the big call for 2009. But it is notable that at least economic policy is different this time. Whether it will work is another thing. Could gold and silver stocks be the exception to this down wave? That was the experience of the 1930s and a coming dollar collapse would likely be the backdrop for a repeat performance by the precious metals sector.
-- Posted Sunday, 30 November 2008 | Digg This Article | Source: GoldSeek.com
Previous Articles by Peter Cooper
About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in
1999 to complete his first book, a history of the Bovis construction group.
Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in www.ameinfo.com, which later became the Middle East's leading English language business news website.
 Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time www.ameinfo.com prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.
He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog www.arabianmoney.net is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.
Order my book online from this link
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US stocks only fair value, heading lower
