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MDCigan -

Thanks for the links!

Ben Graham said even if you are bullish, do not keep more than 75% of your portfolio in stocks; if bearish, no less than 25%.

Good advice, IMO.

However, if the world is bankrupt, as this must-read Bank of International Settlements working paper says, then deflationary pressures will push stock prices further south. For this reason, as well as the other reasons outlined above, my equity exposure is well-below my usual weighting.

Consider: At the March 2009 low of 666 the S&P 500 sold for about 13 times the average of the last ten years' worth of earnings. In contrast, prior bottoms were in single digits; e.g., 5x in 1920 (1901 peak: 25x), 6x in 1932 (1929 peak: 33x), and 7x in 1982 (1968 peak: 22x). So based on 130 years of market history, I think the ultimate low lies ahead.

BTW, with pre-tax PE ratios of 31x and 24x, respectively, on the 10-year and 30-year U.S. Treasury (as of last weekend), bonds are even more expensive than stocks.

Of course I may be wrong :) about all of this.


p.s., I own Saic (SAI) and Stepan (SCL), two Scrooge picks from last December by Tim Beyers. Using an screen I developed to find earnings power-type companies as defined in my book "It's Earnings That Count," Tim's picks have crushed the markets. I expect "continued crushing" over the long push.
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