Sunday, January 10, 2010

Washington, we might have a problem

The world economy is on a recovery track. But every time I read this graph (or similar ones) below, it makes me feel very uneasy.

Stare at this graph for a minute, you will immediately tell what might be the problem: every time after a big market crash, the relative valuation metric (PE ratio) touched the extreme on the downside. You may call it "overshoot on the downside". But not this time.

Government and central bank succeeded in avoiding an armageddon scenario, but does it only postpone the inevitable? I am still posing the question, whether we will be headed into a long secular bear market.