Don’t Look Down

First of all, a long-term chart of the S&P 500 that gives a little perspective.

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If you define “fair value” as the price at which you could buy the S&P with the expectation of historically normal long-term (10-year) returns, that number is somewhere around 1000. But given the amount of time that the SPX has spent above fair value, it can be expected to spend some time below. My guess is that the low will be somewhere in the 400-600 range. Can’t possibly go that low? Look at this chart of crude oil, which shows that the price of crude is not materially higher than it was in 1985, 30 years ago. Goldman says that oil is headed for the $20s (and I do, too). Draw your own conclusions.

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Then just think about this one – the Nikkei 225 index, the benchmark index for the Japanese stock market. Still at less than half its bubble peak despite many rounds of QE, with an economy lurching in and out of recession.

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Have a good day.

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