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The Most Bearish Bear You’ll Find Anywhere: The FED

This is a syndicated repost courtesy of The Felder Report. To view original, click here. Reposted with permission.

In a new economic letter recently released by the Federal Reserve Bank of San Francisco (h/t @dvolatility), a pair of researchers forecast a price-to-earnings ratio for the S&P 500 of a mere 8 in the year 2025 (due to retiring baby boomers’ waning risk appetites). This compares to 17 at the end of last year.

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Let’s take this prediction out to its fullest conclusion. Assuming 3.8% earnings growth over the next decade (the long-term historical average according to Robert Shiller) we would achieve an earnings number of 156.76 for the S&P 500 in the year 2025.

Applying the 8.23 multiple to those earnings we get a price level of 1290 for the S&P 500. Yesterday the index closed at 2090. Ultimately, this research concludes then that stocks could very well witness a decline of 800 points over the coming decade, or about 40%, as baby boomers retire and shift their portfolios to a more conservative stance.

Have you heard a more dire prediction from ANYONE?

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  1 comment for “The Most Bearish Bear You’ll Find Anywhere: The FED

  1. Le Rude Frog
    December 31, 2014 at 10:47 am

    Sounds plausible to me. With no income from investments, no or very low yield, i believe people are severely under estimating the amount of assets that will need to be liquidated to meet needs. The free money lunch will end. If you dont believe that, you subscribe to the printing money equals more wealth theory. News flash, it doesnt.

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