I have my browser set to My Yahoo as my home page. I have it set up to show me news, political news and business news, and I get headlines from different news sources. Under the heading “Top News Stories From Reuters”, there is this headline: Consumer Sentiment Hits 9-Year Low-Report. Under the heading “Financial News from CBS MarketWatch.com”, there is this headline: U.S. stocks climb on consumer strength. The second story contains this information:
Wall Street is reacting favorably to the latest Consumer sentiment data, which fell less than expected in February.
OK, it’s the worst reading in nine years, but stocks are up because it wasn’t as bad as expected.
Meanwhile, the current PE ratio of the S&P 500 is 22.6. As I wrote before, “This is where the stock market usually falls FROM, not TO.” The stock market crashed FROM a PE ratio of 21 in 1929. To put it a different way, stocks are extremely high right now, even though they have fallen from the incredible heights they reached during the bubble. Here are two charts that show you what I mean: Still overvalued and Another perspective. What these charts clearly show is that we are only part way through the bubble, and the market still has a long way to fall before it gets back to where it should be. Here are two more charts, showing historical PE ratios so you can see where we are in terms of valuation instead of price: one, two. The charts on page 2 of this PDF file also clearly show where the stock market is relative to historical average. This is not a pretty picture!
Want to know my thinking on this? The clowns are running the show. Run for your life, get away from the stock market. Get rid of your debt, SAVE MONEY.
Paul Krugman writes about the economy today.
(I should warn you now that both the headlines and content of stories linked to at My Yahoo change sometimes; it happened to me after I wrote the “War Is Peace” entry below.)