Thursday, December 12, 2013

Valuation Multiples (excerpt)

There are plenty of other P/Es that have more historical data, though they tend to be quarterly rather than daily/weekly/monthly as is the forward P/E of the S&P 500, which is our preferred measure of valuation. As of Q3, the market capitalization of equities was 14.7 times corporate profits, not much higher than the average since 1960. Tobin’s “q” measures the market value of nonfinancial corporations relative to their replacement cost. During Q3, it was equal to 1.0, which is in fair-value territory.

Today's Morning Briefing: The Great Moderation II. (1) Two alternative scenarios. (2) Is New Normal the return of the “Great Moderation?” (3) Bernanke’s remarkable speech. (4) Higher P/E for New Normal or Old Normal? (5) Forward P/E slightly exceeds historical average. (6) Other P/Es are in fairly-valued territory too. (7) Tobin’s q ratio is 1.0. (8) Great Recession II? (9) A list of excesses. (More for subscribers.)

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