Crestmont P/E is Warning Stock Market May Be Dangerously High

Crestmont Research’s Crestmont P/E gives us a better picture of price earnings to evaluate the stock market. As you can see in the chart in blue below, its present valuation at 32.1 is just slightly below the P/E at about the time the stock market bubble burst in 2000. Why is the Crestmont P/E created by Ed Easterling a better way to look at price earnings on a historical basis? As Easterling explains it, “the business cycle constantly distorts earnings from its core baseline trend.” The Crestmont P/E compensates for that distortion by normalizing earnings based upon the relationship between historical nominal GDP and reported EPS.

Crestmont P/E is Warning Stock Market May Be Dangerously High
Crestmont P/E is Warning Stock Market May Be Dangerously High

Ed Easterling is the author of Probable Outcomes: Secular Stock Market Insights and award-winning, Unexpected Returns: Understanding Secular Stock Market Cycles. He is currently President of an investment management and research firm.

 


Brad Lamensdorf

Brad Lamensdorf, the founder and portfolio manager of Active Alts, is a principal and co-manager of the AdvisorShares Ranger Equity Bear ETF. He previously managed a long-short investment partnership from 1998-2005 under the name Tarpon Capital Management. Earlier in his career Mr. Lamensdorf was an equity trader/market strategist for the Bass Brothers’ trading arm. He managed a short only portfolio in addition to co-managing a $1bil hedging program. He also served as in-house market strategist for the entire internal and external network of Bass Brothers money managers.

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