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Important caveat to my comments above: If inflation heats up, we may have seen the price lows on the S&P last month. This is because as the Fed puts more money into our economy, the extra supply will chase stocks, pushing prices higher. Of course, inflation will result in the loss of buying power, so on an inflation-adjusted basis we lose. Dr. Shiller's 10-year PE's are calculated in an inflation-adjusted basis. To lean more, go to ...

http://www.irrationalexuberance.com/index.htm

...and then click the link in this paragraph:

"One can access an Excel file with the data set (used and described in the book) on stock prices, earnings, dividends and interest rates since 1871, updated.

Every weekend I estimate the year-over-year growth in the U.S. gross public debt. The latest data shows growth of 15.9% annualized, vs. "just" 7.1% in August. I believe this rapid growth rate is a harbinger of inflation, which will punish savers and bondholders. In nominal terms, stocks will rise. On an inflation-adjusted basis I still think we hit the 10-year PE lows of prior market troughs.


Hewitt
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