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Dividend Growth

Curious if PEs not expanding in part due to large buyback activity.

Earnings Growth

This chart shows that the current bull market is based on earnings growth. An interesting chart might be annualized earnings growth vs length of bull market. I think you should find that we are also in unprecedented territory, but maybe not as bullish.

As an aside, have you done any analysis on China P/Es vs US P/Es. I would be very interested to see comparisons when relating to the 2000-2002 area in term of accelerating P/Es. With Greenspan's recent comments about China looking like a possible bubble I think the analysis would be highly interesting.

-BTW I love the analysis. Combining this with an overall economic view has led to some great trades.


Buybacks are an issue as is hidden inflation.
To my thinking this argues not for more gains to come, but rather supports the view that the bull run has been a mirage.


The thing is, the P/E contraction leaves the multiple still toward the high end of "end of bull market cycles" on average.

That argues for the bull not having legs.


Could this effect simply be the nature of the sectors that have led this bull run?

Where technology and financials have led bull markets of the past, commodity related sectors such as energy and materials have been the leaders so far this time.

It seems the stocks in these groups often show P/E contraction as they appreciate in price. Due to the historically cyclical nature of commodity pricing, earnings often grow faster than stock prices. A contracting P/E may signify we are approaching peak earnings.

I would be interested if anyone with a longer investing history can relate the Bespoke information above to what has happened in cases where commodity related stocks have led bull markets in the past.



Interesting comment. We'll look into this and report back with any compelling findings.

Justin at Bespoke

barclay tanner

Please find a copy of the book "How to lie with statistics". I believe you'll find your answer there.



Mathematically all this means is that earnings estimates were too low when the bull market started or too high now (or a combination of the 2).

1) If they were too low then - who cares? Probably low earnings estimates were based on the then recent carnage of the tech bubble crash. Earning probably ended up much better than expected.

2) If they are too high now - this would seem to indicate that stocks are currently over priced (or the recession ain't coming).

With regard to #2, somebody is wrong (i.e. either the bulls or the bears). To assume we have to go back above a 30 PE to end the Bull market is ridiculous though (which is what this post seems to imply).


The analysis should include the period after the 1929 crash. The rally from about 1933-37 exhibited a similar pattern of falling P/Es during a cyclical bull rally. See http://www.comstockfunds.com/files/NLPP00000%5C026.pdf.

After a great mania, people are inclined to pay less for a dollar of earnings, not more.

NoFate is right to challenge the implication that P/Es ought to go back to about 30, where they obviously never should have been in the first place.

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