Below we highlight the country indices from the list in our last post that have seen the biggest increases and decreases in P/E ratios (trailing 12-month) in 2008. As shown, Bulgaria's P/E ratio has fallen the most of any other country this year, from 48.46 down to 6.22. China ranks second, with its P/E ratio falling from 44.28 to 14.55. A 14.55 trailing P/E for China is very low.
Just five countries of the 84 on our list have seen their P/E ratios actually increase this year. Unfortunately, the US is one of the five. During bear markets, P/Es usually contract because the price (P) of the index falls more than earnings (E). Since P/Es have increased (albeit slightly) in the US in 2008, it means earnings have fallen even more than price.
Bailouts' Unintended Consequences
Within the next 12 months the yields on treasuries will begin to rise. This is because the fools (China etc.) who have been willing to accept low interest rates will be tapped (China has a stimulus package of their own to fund etc.) out.
This will cause all interest rates to rise, which will make the housing market worse. If it gets too much worse then the stability of the financial system will once again be the main concern.
Shorting treasuries seems like a rational investment, but yields may decrease before they increase.
Posted by: Owner Earnings | November 10, 2008 at 07:47 PM
ah,O E,China are know "fools",they are playing the long game. China holds 2 trillion of other country bonds,so usa anothers are paying for there stimulus. e.g. 300billion to replace rail tracks over the next 7years,and were will they buy steel? so in other words they will be giving back the T bills(bonds)
Posted by: dj | November 11, 2008 at 10:00 AM