Where is the Market Headed?

According to Mike Maloney we are currently in a bear market rally. The DOW dropped from around 14000 to around 7000 and has partly recovered to more or less 9000.

The P/E Ratio (Price Earnings Ratio) is the measurement of the value of a stock. It is (total number of shares multiplied by the price) divided by (the annual earnings divided by the total number of shares time the price).

Market value per share / Earnings per share (EPS)

Let’s say you invest 70 dollars with 10 dollars in earnings per year. It would take 10 years to get your money back. A P/E under 10 is a bargain. Anything over 18 is a bubble and at the top of the market we were in a bubble at 25. Stocks dropped but company earnings dropped even faster leaving us with a P/E of 30. By looking at it from this angle the Dow would have to drop to 3500 to get back to a fair valuation.

When the total of adjustable rate mortgages adjusted up to 30 billion (2007) is when the financial meltdown got into full gear. Now it’s down to about 15 billion but the rates will readjust upward in a second wave.

Maloney believes that after this year you will never see Gold under $1000 again. He also predicts Gold to hit 5000 and expects that, after the initial explosion of Gold, Silver will be the big winner when people can no longer afford to buy Gold.