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"don't forget all the tax and institutional reasons (lots more folks invested because of IRAs and Mutual funds than the good old days when stocks were only owned by the rich and foundations and other institutions) why P/E ratios have to be higher. "

I have seen this argument many times. I agree in the short term stock price is more driven by supply/demand, but over the long run, it is determined by the future cash flow companies will produce. Does the anticipated growth rate/future profit implied by current valuation seem reasonable to you?
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