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Friday, May 15, 2009

Time to sell stocks?

Bill Bonner thinks the 'Bama Bounce in the stock market might be over:

Let’s review: stocks get expensive…then they become cheap. That’s just the way it works. Prices go up and down in long cycles. At the top of the cycle, they’re very expensive – over 20 times earnings. At the bottom, they’re very cheap, under 5 times earnings. At the top of the cycle you might need as many as 43 ounces of gold to buy the Dow stocks. At the bottom, one or two ounces will do the job.

At present, stocks are not cheap. In nominal terms, the Dow is 8 times higher than it was when the bull market began in August 1982. In terms of gold, it takes about 9 ounces today to buy the Dow. That’s a lot less than it took in 1998, when the Dow was 43 times the price of an ounce of gold. But it’s a lot more than you find at real bottoms. At the bottom of the cycle in 1982, you could buy the entire Dow for just one ounce of gold. And in terms of P/E ratios, you can buy a few stocks at very low price-to-earnings ratios today, but the majority are still above 15. When they get down to 5, we’ll talk.

There being no sign of a bottom in the stock market yet, nor even the seeds of a bottom, we’ll adjourn today’s session…and guess that the real bottom is still far ahead.

Time to sell the rally.

--from "Time to Sell Stocks" by Bill Bonner at http://dailyreckoning.com/time-to-sell-stocks/.

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