Quote du Jour Posted on September 2, 2008 by Yves Smith From the Nattering Naybob: Shares in the S&P 500 have climbed to an average 25.8X reported profits…. The last time that happened in 2001, the S&P 500 fell 38%. As they like to say, past performance is no guide to future return, but be warned. Post navigation ← Korea: On Verge of a Currency Crisis? More Bank Woes: Spreads on Credit Card Securitizations Rise → Subscribe to Post Comments 3 comments doc holiday September 2, 2008 at 6:04 pm This may fit, i.e, an FYI from 2003: But the benchmark 10-year note has been on a tear as well, gaining a full point since the Fed’s statement and pushing its yield to a 45-year low of 3.29 percent before edging back up to 3.34 percent. That drop in benchmark yields has already helped the economy by spurring corporate borrowing at such cheap levels while sparking another big wave of mortgage refinancings that will put extra cash in the pockets of consumers. Even if the threat of deflation is seen as very remote, most market participants believe the Fed likely has at most one interest rate cut left in its arsenal before trying other stimulative policy measures such as buying Treasuries. “Deflation is a very sensational story,” said Anthony Karydakis, senior financial economist at Banc One Capital Markets. With the federal funds rate at 1.25 percent, a move much below 0.75 percent or 0.50 percent could seriously disrupt money market funds, which rely on a positive interest rate to cover their operating costs. Ok, I need a bond expert here: The Fed Fund rate is now 2 percent and the 10 year @ 3.74%, which is damn well a 50 year low. This seems to link to Hussman suggesting the divergence between overvalued stocks and overpriced treasuries, i.e, stocks with very low yields and the correlation of very low Treasury yield — this aint good; does anyone know bonds here? My theory is that Treasury is crashing the bond yield for a Fannie bailout which requires massive amounts of funding, but how does a bond bubble fix this? I think I’ll just post under a new alias… tyaresun September 2, 2008 at 7:46 pm Yves, Here the whole article from Bloomberg: http://www.bloomberg.com/apps/news?pid=20601213&sid=a_zvHOtLeCis&refer=home Sept. 2 (Bloomberg) — The best already may be over for the U.S. stock market this year. The Standard & Poor's 500 Index, which had the worst first half since 2002, added 0.2 percent this quarter through last week, the only gain among the world's 10 biggest markets in dollar terms. Shares in the benchmark index for American equity climbed to an average 25.8 times reported profits, the highest valuation in five years. The last time that happened, the S&P 500 fell 38 percent. Anonymous September 3, 2008 at 8:46 am What's the S&P500 P/B ratio now, and what happened the last time it was at this level? I don't know the answer but would be interested if anyone else does. Comments are closed. Tip Jar Please Donate or Subscribe!