Remember that the deeper this goes, the better the chance of the rebound happening. When it does, it will be spring loaded. Stock prices are cheap. It's an inexact science so there is no point in going into an elaborate dissertation. Using historic measures, normalized earnings, book value and free cash flow, stocks around the world are cheap, but not as cheap in absolute terms or versus interest rates as they were in the 1930s or at the 1974 bottom. Nevertheless, the 4 per cent dividend return on the S&P 500 exceeds the yield on the 10- and 30-year Treasury bonds for the first time in 50 years. If emerging-market equities, where the growth is, at six to eight times earnings are not cheap I don’t know what is.
Stock markets have been obliterated and are deeply oversold. Even dead cats bounce. The Dow has had the steepest decline since the '30s, and the spread between the price and the 200-day moving average at 34 per cent is the greatest since July 19, 1932. The US market is down almost 50 per cent from its highs, Europe is off 55 per cent, emerging markets 65 per cent, with some unfortunates like Russia off 70 per cent. History shows that even in enduring, secular bear markets there are not just 20-per-cent bounces but usually one 30- to 50-per cent rally. We should be about due.
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