In my opinion, we are not going into any kind of 1929 depression with 30% unemployment, GDP going down for year and massive assets write down (banks closing then), so to try and draw parallels between the current period and 1929 is ridiculous. We are going to go through a period of sub par growth in GDP with intermittent mild and some more severe bear markets, a period through which valuation metrics are going to gradually adjust down, that implies that while earnings of corporate America will continue to grow, the valuation on these earnings is going to be marked down through few cycles of secular bull/bear markets over a lengthy period. I doubt the period will be much longer 10 years, this simply because we live in a faster world where dissemination of information accelerates the change in investor psychology. That is exactly the same thesis I have advanced almost three years ago, and so far, it is playing out as expected, though I was much too optimistic about the Naz and thought it would take much longer for the overvaluation to be taken out. I did not take into account losing almost 40% of the Naz issues (g). At the end, we may end up with long term rates peaking at around 8%, the S&P selling at a PE of 8 to 10 (fed model undervaluation of between 20% to 40%) but because earnings in five/seven years might be a good 40% to 80% higher, the actual lows will not be more that 20% of the recent lows.
Zeev
