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| S&P 500 PE Ratio - 90 Year Historical Chart Note that the vertical scale is logarithmic |
Tam commented on my last money post to tell me I was all wet about Price to Earnings (P/E) Ratios, so I checked. Up until 1990, the P/E Ratio pretty much stayed below 20. Since then it has been noticeably higher.
The giant peak (over 120) occurred in June 2009, when company earnings collapsed to near zero in the wake of the Great Recession when all those big banks went bust.
Current P/E ratio is about 30, which is also the length of a typical home mortgage in years. I vaguely remember when I was a kid that mortgages were about 20 years and loan payments were about 1% of the purchase price of a house. When I finally got around to buying my first house back in the 80's, 30 year mortgages were the norm and payments were about one half of one percent of the purchase price.
Current P/E ratio is about 30, which is also the length of a typical home mortgage in years. I vaguely remember when I was a kid that mortgages were about 20 years and loan payments were about 1% of the purchase price of a house. When I finally got around to buying my first house back in the 80's, 30 year mortgages were the norm and payments were about one half of one percent of the purchase price.
Anyway, I attribute the rise in P/E ratios as a result of some people (oil barons, drug cartel kingpins and arms merchants) making more money than they know what to do with, so they put it in the stock market.
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