Replies to post #145280 on Biotech Values

[zipjet]

This time is different

First, you are ignoring a key part of history as represented by the steepness of the YC. It is at least as important as the average level. Bonds would soar (not crash) if the YC slope returned to historic norms.

This time is different

I read it, have you? Great read.

It would help you understand that a financial crisis is different with a global survey. (1800-2000's)

http://www.amazon.com/This-Time-Different-Centuries-Financial/dp/0691142165

Or you might read Minsky to learn that the impact on corporate earnings and valuations depend on government deficits:

http://www.amazon.com/s/ref=nb_sb_ss_i_1_14?url=search-alias%3Dstripbooks&field-keywords=stabilizing+an+unstable+economy+hyman+minsky&sprefix=stabilizing+an%2Cstripbooks%2C274

an assertion that has accompanied every financial bubble in recorded history.

Really? I have read the definitive work on bubbles by Kindleberger:

http://www.amazon.com/Manias-Panics-Crashes-History-Financial/dp/0230365353/ref=sr_1_1?s=books&ie=UTF8&qid=1341960825&sr=1-1&keywords=manias+panics+and+crashes+a+history+of+financial+crises+by+charles+p.+kindleberger+2011

Have you? Tedious read but really sets the scene from 1618-1990.

[Rocky3]

“This time is different!”, which is an assertion that has accompanied every financial bubble in recorded history.

Not sure that I agree, since I too am not sure that the current rates are "too low." Most of us have lived in a high rate environment. Prior to the early '50s, bond rates were always less than dividend rates, due to the higher risk of the dividend payments. That theory was over-turned by the common expectation that long term rate of growth was better with stocks and that "total-return" investing justified buying stocks that did not pay significant dividends. That expectation is now in question given the last 12 year total returns.

It is very possible that the equity "bubble" that started in the 50s is just being burst. Having invested in the 70s (and reading a lot of the history of the market prior to that), p/e's in the double digits seem quite high to me. The "bubble" of the 90s clearly has distorted the recent historical numbers relating to p/e's. I see no reason that stocks growing at 6-7% (double the GNP growth rate over any long term period) should have a p/e over 8. Historical they have not (at least not 'til the late 80s).

Banks, insurance companies, manufacturers, etc. should not have premium valuations.

JMO.