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J. Hardy
RE: Down goes the Dow

Ghost of Igloi wrote:


agip wrote:


Ghost of Igloi wrote:

Sure. My view is the market (World Equities) have likely peaked this cycle. Fair value is around 60% lower with a range of 20% either way depending on the market or capitalization. Of course you can’t be sure of the timing but that won’t matter since the downside will be significant and historic.


so you think the market right now should have a PE of around 10, if people were rational?


You use non-GAAP and Foreard PE. $122.48 (LTM GAAP S&P 500 EPS ) x 16.5 (historic multiple) = 2,020 (fair value), or about 35% lower than today’s close. The $122.48 number is inflated by high margins from low cost of funds, tax cuts, low labor costs, and low material costs. Those tail winds have likely peaked. Lastly, markets don’t just mean revert, they mean invert. I believe central bank liquidity driven speculation has so distorted the market the end will likely drive the S&P 500 down to 900-1,100.


Would you mind explaining the genesis of that 16.5 number? Thanks.

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