Karl Denninger reports here that the Dow's price-earnings ratio may be overestimated by a factor of 4. And here, that financial institutions will have to bring Structured Investment Vehicles back onto their books within 12 months.
The reckoning - the painful correction - approaches.
Doug Noland (April 4) agrees:
It is my view that our economy will require a massive reallocation of resources. We will have to create much less non-productive (especially mortgage and asset-based) Credit and huge additional quantities of tradable goods. In the “services” sector, there will no choice but to “liquidate” labor and redirect its efforts. Throughout finance, there will be no alternative than to “liquidate” bad debt, labor and insolvent institutions – again in the name of a necessary redirecting of resources. After an unnecessarily protracted boom, there will be scores of enterprises that will prove uneconomic in the new financial and economic backdrop. “Liquidation” will be unavoidable.
Will our wise leaders in the UK learn from this?
P.S. How come (Denninger, here) the Dow p/e appears out of whack by 53:13, but the S&P 500 only 20:14? The latter implies only a possible 30% drop, which is a bit less apocalyptic than the 75+% of the Dow!
Generally the Dow and the S&P have followed similar trajectories over various periods, with a little widening in the last 12 months: