While current PE ratios, in all their variants, are not at 1999 levels, they have clearly climbed back to 2007 levels and are well above historical averages. Scary, right?…It is true that stocks look expensive today (at 27 times earnings) but they start to look much better when you compare them to bonds (at 40 times earnings). If you are concerned that bond rates will climb this year to reflect higher inflation/real growth, you may be forced to take another look at how you are pricing stocks at that time.

More at Musings on Markets

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