Well, I respectfully disagree with the P/E acolytes.

Corporate earnings growth of late has been affected in no small measure by over-reaching and expansive consumption, major assist from loose lending. A good portion of earnings growth tracks back to leverage. The gains are not entirely ‘real’. They are not strictly the result of technological innovation, increases in labor or productivity or the discovery of resources. More likely, they are substantially connected to the current credit situation.

IMHO, the effects of credit and leverage on equities markets have been largely understated to date. The consumer economy is driven by credit and has clearly reached a peak. Detroit is a mess. Durables are in trouble. Retail is tanking. All this was before the run up in prices for energy and commodities, which will further depress consumption. Don’t forget to factor in ‘innovations’ in financial engineering (e.g. stupid Excel tricks) from the accounting and finance industries and Fortune 500 Budget/Finance Divisions…

Look for a combination of currency devaluation and outright deflation of asset values over the next few years, including in the markets for equities. Maybe we reach a nominal floor at some point, supported by foreign investment, after currency devaluation transforms our economy into a freakin’ yard sale.

And I am most concerned about collateral damage from the unwinding process, negative impacts on the ‘real’ economy. There is plenty of viable, profit-making, goods and services producing work and industry out there, and it depends on functional financial markets. I’m concerned that it’s going to take a fairly severe hit as a result of the shenanigans of the past decade. (Great job, Boomers, Greenspan. Hope you had a good party. Thanks for trashing the place. Now get the hell out.)