Tuesday, November 17, 2009

Market Valuation

Mark Haines (not pictured) made a comment this morning on Squawk Box about market valuation. Many folks are complaining that market valuation is too high considering the weak economy. We have unemployment over 10%, homeowners are facing foreclosures, and there is an overall sense of gloom. Haines said that early in an economic recovery, valuations would be higher because corporate earnings haven't caught up with the turnaround.

Corporate earnings are reported looking at the rear-view mirror. We're not at the point where things in the rear-view mirror look anything close to rosey.

And for federal and state tax revenues, things look even worse as those lag the economy based on tax years. We know the federal deficit is closing in on $2T. California may be looking at a $25 billion hole.  As the recovery progresses, then tax revenues should increase.  If the stock market closes out a positive year, maybe we'll even see some capital gains taxes roll in.  In states like CA where we rely heavily on the rich to pay taxes, as the rich prosper the state prospers.

Anyway, nice comment by Haines.  I think looking when looking at data points, it is important to look around and see where we are in the economic recovery, rather than apply a strict and rigid historical model.

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