a couple of sp500 pe charts http://www.lowrisk.com/sp500pe.htm http://bespokeinvest.typepad.com/.s...s/uncategorized/2007/09/26/historicalpe95.png http://bespokeinvest.typepad.com/bespoke/2007/09/historical-pe-r.html
Another interesting chart. End of 2007: Earnings per share at highest level since at least 1989. End of 2007: P/E ratio at lowest level since 1996. P/E ratio downtrend reversed to uptrend late 2006, right around the time real estate starting turning ugly. Perhaps stocks started looking no so bad after all. Real estate is getting uglier by the day, and the bottom is far from over. CDs and MM funds don't even keep up with true inflation. Where is all the cash going to go?
Though P/E ratios are at the lowest levels since 1996, they are nevertheless near long term average levels. Though it is valid to look at P/E ratios, because both numerator and denominator are inflated by the same percent, it is invalid to look at earnings alone before correction for inflation. After correction, it is clear that earnings have not increased nearly so much as it might seem. When politicians speak of growth in the economy they seldom are referring to real growth as corrected for inflation. Grapes should be compared with grapes, not with grapefruit.