P/E10 Sequences

I brought up the Scenario Surfer. I generated 20 years of P/E10 sequences. This gives us a glimpse into the likely future.

Scenario Surfer Conditions

I set the Scenario Surfer to a P/E10=14 Bear Market. I determined how P/E10 varied over the next 20 years.

Data

Run 1.
Year 5 P/E10=11.5
Year 10 P/E10=8.8
Year 15 P/E10=17.3
Year 20 P/E10=11.9

Run 2.
Year 5 P/E10=14.1
Year 10 P/E10=13.8
Year 15 P/E10=10.7
Year 20 P/E10=8.4

Run 3.
Year 5 P/E10=10.6
Year 10 P/E10=6.7
Year 15 P/E10=10.3
Year 20 P/E10=8.3

Run 4.
Year 5 P/E10=5.0
Year 10 P/E10=7.4
Year 15 P/E10=7.3
Year 20 P/E10=7.7

Run 5.
Year 5 P/E10=14.1
Year 10 P/E10=7.3
Year 15 P/E10=8.5
Year 20 P/E10=11.1

Run 6.
Year 5 P/E10=5.5
Year 10 P/E10=6.6
Year 15 P/E10=7.0
Year 20 P/E10=8.8

Run 7.
Year 5 P/E10=9.6
Year 10 P/E10=5.8
Year 15 P/E10=14.6
Year 20 P/E10=10.8

Run 8.
Year 5 P/E10=19.6
Year 10 P/E10=11.0
Year 15 P/E10=7.4
Year 20 P/E10=10.9

Run 9.
Year 5 P/E10=14.0
Year 10 P/E10=6.3
Year 15 P/E10=7.7
Year 20 P/E10=13.0

Run 10.
Year 5 P/E10=13.5
Year 10 P/E10=12.9
Year 15 P/E10=13.0
Year 20 P/E10=7.4

P/E10 Sequences

Sorted by Run Number

Run 1: 11.5; 8.8; 17.3; 11.9
Run 2: 14.1; 13.8; 10.7; 8.4
Run 3: 10.6; 6.7; 10.3; 8.3
Run 4: 5.0; 7.4; 7.3; 7.7
Run 5: 14.1; 7.3; 8.5; 11.1
Run 6: 5.5; 6.6; 7.0; 8.8
Run 7: 9.6; 5.8; 14.6; 10.8
Run 8: 19.6; 11.0; 7.4; 10.9
Run 9: 14.0; 6.3; 7.7; 13.0
Run 10: 13.5; 12.9; 13.0; 7.4

Sorted by Year 5 P/E10

Run 8: 19.6; 11.0; 7.4; 10.9
Run 2: 14.1; 13.8; 10.7; 8.4
Run 5: 14.1; 7.3; 8.5; 11.1
Run 9: 14.0; 6.3; 7.7; 13.0
Run 10: 13.5; 12.9; 13.0; 7.4
Run 1: 11.5; 8.8; 17.3; 11.9
Run 3: 10.6; 6.7; 10.3; 8.3
Run 7: 9.6; 5.8; 14.6; 10.8
Run 6: 5.5; 6.6; 7.0; 8.8
Run 4: 5.0; 7.4; 7.3; 7.7

In spite of being in a Bear Market, P/E10 sequences are just about as likely to have increased as decreased at Year 5.

In two out of ten runs, the P/E10 dropped precipitously below 6.0. In four out of ten runs, P/E10 fell below 11.0.

Sorted by Year 10 P/E10

Run 2: 14.1; 13.8; 10.7; 8.4
Run 10: 13.5; 12.9; 13.0; 7.4
Run 8: 19.6; 11.0; 7.4; 10.9
Run 1: 11.5; 8.8; 17.3; 11.9
Run 4: 5.0; 7.4; 7.3; 7.7
Run 5: 14.1; 7.3; 8.5; 11.1
Run 3: 10.6; 6.7; 10.3; 8.3
Run 6: 5.5; 6.6; 7.0; 8.8
Run 9: 14.0; 6.3; 7.7; 13.0
Run 7: 9.6; 5.8; 14.6; 10.8

Higher Year 5 P/E10 values usually precede higher Year 10 P/E10 values, but not always.

Year 10 P/E10 values were below 11.0 in seven out of ten runs.

Year 10 P/E10 values were below 8.0 in six out of ten runs.

Year 10 P/E10 values fell below 14.0 in all ten runs.

Sorted by Year 15 P/E10

Run 1: 11.5; 8.8; 17.3; 11.9
Run 7: 9.6; 5.8; 14.6; 10.8
Run 10: 13.5; 12.9; 13.0; 7.4
Run 2: 14.1; 13.8; 10.7; 8.4
Run 3: 10.6; 6.7; 10.3; 8.3
Run 5: 14.1; 7.3; 8.5; 11.1
Run 9: 14.0; 6.3; 7.7; 13.0
Run 8: 19.6; 11.0; 7.4; 10.9
Run 4: 5.0; 7.4; 7.3; 7.7
Run 6: 5.5; 6.6; 7.0; 8.8

Very low Year 5 P/E10 results persisted through Year 15 in two out of ten instances.

Sorted by Year 20 P/E10

Run 9: 14.0; 6.3; 7.7; 13.0
Run 1: 11.5; 8.8; 17.3; 11.9
Run 5: 14.1; 7.3; 8.5; 11.1
Run 8: 19.6; 11.0; 7.4; 10.9
Run 7: 9.6; 5.8; 14.6; 10.8
Run 6: 5.5; 6.6; 7.0; 8.8
Run 2: 14.1; 13.8; 10.7; 8.4
Run 3: 10.6; 6.7; 10.3; 8.3
Run 4: 5.0; 7.4; 7.3; 7.7
Run 10: 13.5; 12.9; 13.0; 7.4

Much of the randomness has returned by Year 20.

Turning Points

Most likely, there will be a turning point before twenty years are up. The market is likely to return to normal after hitting a low within the first ten years, possibly sooner. This would affect the following values of P/E10.

Conclusions

The market could do just about anything within the next five years although the possibility of further declines is substantial.

The market behavior is likely to be defined within ten years.

A high P/E10 at Year 5 is likely to be followed by a relatively high value of P/E10 at Year 10.

Have fun.

John Walter Russell
January 30, 2009

January 30, 2009 Letters to the Editor