NYT columnist David Leonhardt does a good job of spreading some basic commonsense on stock prices. The stock price should reflect earnings. Leonhardt notes that current PEs are about 27 against trend earnings, far higher than the historic average.
The reason for including the "almost" is that Leonhardt felt the need to say that maybe stocks aren't over-valued if profits keep growing rapidly (sounds like Alan Greenspan in the 90s). Well don't hold your breath on that one. Profits peaked in the 3rd quarter of 2006 and were down sharply in the 4th quarter of 2006 and the first quarter of 2007. It's always possible that they will bounce back, just like it's possible that President Bush will sign the Kyoto agreement, but I don't know anyone who will bet on either event.
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