Is the real S&P 500 price-earnings ratio 18 or 36?
If the S&P 500 PE ratio was 18, as now appears in the newspapers, one might conclude that stocks, although over-priced, were still a reasonable investment. However, if the real PE ratio was closer to 36 — but hidden by the loopholes in GAAP, the current market “recovery” would appear to be a mere bounce in a bear market heading for further losses. It would seem that it is a little early to break out the champagne and to start celebrating economic recovery.
