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January 12, 2005

Stocks Overvalued

From Dean Baker, "Late Stock Market Rally Makes 2004 a Winning Year Jonathan Fuerbringer New York Times, January 1, 2005, Page C1 This article discusses the stock market's prospects in 2005. It never mentions the current price-to-earnings ratio of the market. This is comparable to assessing the value of rental property without noting the annual rent it produces. In fact, the current price to-earnings-ratio in the market is more than 20 to 1, approximately 50 percent higher than their historic average. This implies that the market can be expected to provide lower than average returns, although the outcome in any particular year will always be unpredictable."