According to this page
S&P had a Q1 Est. GAAP PE of 20 at 873 on Dec 26, and a yield of 3.2
I ran the numbers against some S&P pivots
If we say that PE 15 is value by historical norms, then S&P should be 654, assuming that earning estimates hold.That still will not give a good yield by historical norms of deep value bottoms, assuming that dividends are maintained. Now, no one can say for sure that things stop right at norms. They usually do not, and overshoot as the craze of masses rages beyond norm and reason.
Further down the page, there is a graph of historical monthly peak PEs, based on John Hussman's method. According to Hussman-based graph we are very close to the trend. If I understand Hussman's graph correctly, the graph is telling us that we are very close to the trend line of earning bottoms.
My argument is that what if the trend of earning growth, that we have had since 1932, according to the chart, changes and we get into a long operiod of earning contractions that would break the existing trend? I mean, instead of peak to peak earning, what if we go through a long period of trough to trough earning?
I am sure some will say that it has not happened yet and the trend is up, and is more likely to stay up like all long-term trends.
Then I may say that well, we have not had a debt collapse of this magnitude, and I am not only talking the magnitude of debt collapsed but also the fact that it is truly global in nature. And they may say well, in a fiat based monetary system there is nothing a printing machine cannot fix. Then I might say that those earnings will be extremely diluted for purchasing power as they will buy less ounces of gold and less kilos of wheat. And they may say that the bankers will tighten and bring the system back to benign inflation. We can go on forever.
I guess it is all a matter of how one looks at numbers. My friend Bill Zimmer of prudenttrader.com always says that he can give very compelling bull and bear arguments for the same issue at the same time, and I believe him.
I am just glad that I look mostly at charts and seldom at numbers.
John Hussman, by the way, does very good fundamental research, and writes excellent papers. His weekly articles can be found at