Q ratio and a new market bottom

Full story here. Investing for the long haul just got a lot longer…This is the second time I’ve heard about this kind of drop. The prior one predicted the Dow at 4,000, but much sooner. But we may (I emphasize may because my crystal ball’s out for servicing right now) retrace up to 10,000 or 11,000 (if only to justify bonuses this year) and then watch the index deflate further. Please keep in mind, being able to go short on futures and indices means you can still do well regardless. Also, not every business will suffer. There will be various industries that will be experiencing tremendous growth, either as a result of infrastructure investment, new innovations, commodities, etc. Just don’t sit on your butt watching TV and hoping it will all go away without you having to do anything about it.

“…shows the Standard & Poorâ??s 500 Index is still too expensive relative to the cost of replacing assets, said Napier. While the 39 percent drop in the index this year pushed equity prices below replacement cost, history suggests the ratio must sink further as deflation sets in, he said. The S&P may plunge another 55 percent to 400 by 2014, Napier said.

â??The Q has come down to its average, however itâ??s not always stopped at the average,â? said Napier, Institutional Investorâ??s top-ranked Asia strategist from 1997-1999. â??It has tended to go significantly below that in long bear markets.â?

Shares have fallen this year as the worst financial crisis since the Great Depression caused almost $1 trillion of bank losses and dragged the worldâ??s largest economies into recessions. The MSCI World Index has tumbled 44 percent in 2008, set for the biggest annual decline in its four-decade history.

Before the trough in 2014, investors are likely to see a so- called bear market rally for the next two years as central bank actions delay the onset of deflation, Napier said.

â??In the long run, stocks will become even cheaper,â? said Brian Shepardson, who helps manage $1.9 billion at Xenia, Ohio- based James Investment Research. The firmâ??s James Balanced Golden Rainbow Fund beat 98 percent of similar funds this year. â??Thereâ??s a likelihood of some type of rally and further pullback surpassing the lows weâ??ve already set.â?

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