Annualized Stock Market Returns Based on PE Ratios

An excellent post by Mish with some fantastic data on annualized stock market returns based on Price/Earnings ratios.

http://globaleconomicanalysis.blogspot.com/2011/02/negative-annualized-stock-market.html

What's really scary is that pe ratios have yet to drop below the historic average of 15 since 1987, at least not for an entire year. If I combine that bit of knowledge with the incredible debt of our nation and an ever worsening demographic I can only come to the conclusion that bad times are ahead and they will either be REAL bad or they will last for a long, long time. Likely it's a bit of both.

We have and continue to live beyond our means. I not only see this in the data but in the people that I speak to on a daily basis. I believe we have hard times ahead as a nation, but as Mish points out, when it happens is impossible to predict. I will continue to take stabs at shorting the market but mainly I think the prudent position is to save for the proverbial rainy day and be prepared to invest heavily on the long side in about 15 years. I base that time frame on demographics and my knowledge of Generational Dynamics and the Fourth Turning.

--Fred