I am from the Dutch landscape and here we have a bank named ING.
Total balances of ING are rather precise 3 times the Dutch gross domestic product, for the USA that would compare to a bank with balances of about 45 trillion US$.

The details from Swiss and Austria were also unknown to me until this week; ok ok these are a few trillions and indeed East European currencies got hammered hard (the main hurdle to take beside the economic slowdown over there).

But these are just a few trillion and it might be East Europe misses on some payments but we must never forget: Borrowing in numbers like these was simply needed to give them a perspective on joining the Euro.

For me it is funny to obeserve how the international media works; enlarging a few trillion here, pointing at weak European institutions there and voila: we have a scenario that will wipe out the Euro.

That is very funny because after all the US financial sector has about 17 trillion of debt on herself, it is beyond the USA GDP and grows much faster for a long long time.

Nobody points to that big beast, always small countries and horrible scenario’s are mentioned.

The Geithner thingeling refers to the big beast as ‘legacy loans’ and offers a 500 billion public/private solution to that while in reality in the last year 2008 we could easily have over one trillion $ debt going toxic.

Oh oh, where are the macro economists that speak out on the big beast?

Source:

http://www.federalreserve.gov/releases/z1/current/accessible/d3.htm

And when will the total of OTC derivative contracts come again in the media picture?
600 trillion US$ in derivative positions and the combined contracts were about 14 trillion or, lets say, one USA gross domestic product.

For the time being the East European problems might be big but it is only a smoke screen hiding the real troubles.

That is what I had to say, live well & work well.

You say
“Look at the 20-year average returns in the table above. The higher the P/E ratio, the lower (in general) the subsequent 20-year average return. Where are we today? As I have made clear in my last two letters, we are well above 20. Today we are over 30, on our way to 45.”

However, in Easterling’s 12/31 update, his method says we are at 14.4 (Schiller’s at 15.2 and as reported at 18.8)

Further he says:
“CURRENT STATUS (Year-end 2008)
Despite a modest recovery in the stock market since the most recent report, P/E remains
somewhat undervalued and positioned for nearer-term above-average returns (assuming
that the economy is not expected to enter a multi-year period of significant deflation or
relatively high inflation). The ‘Reported’ measure of EPS and P/E, reflecting the most
recent four quarters, is becoming more distorted. This is the typical distortion that occurs
during earnings cycle troughs. Reported P/E is expected to rise further as the distortion
increases. Be aware of the distinction between Reported P/E and the normalized P/Es in
media articles and analysts reports that suggest relatively high overvaluation. ”

All from the last report on this page
http://www.crestmontresearch.com/content/market.htm

I’m curious how you arrive at where we are today as far as P/E. On the Crestmont site, in the Truth About P/E’s article (the addendum to be specific), Ed Easterling says,

“For the P/E to be valid and representative, the requirement for the denominator of the
ratio, earnings (E), is that it reflects the base line trend for earnings. ”

He goes on to speak of Ibbotson, Shiller, and their own approaches and says,

“Regardless of the approach used, some action is needed—especially near the peaks and troughs—to
reduce the distortions that can lead to inaccurate conclusions. ”

How are you adjusting for the assumed downward trend in earnings?

What resources are out there that you believe calculate the current P/E ratio most accurately?

Thanks,
Jeremy