I’ve posted Entry #19 in my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Stocks Mispricings Are Sticky.
Juicy Excerpt: One reason why I believe that it is stock prices affecting the economy rather than the other way around is that stock mispricings are sticky. If it were the economy affecting stock prices, stock prices would quickly move in response to economic developments. This is not what we see in the record. What we see is that mispricings on both the high and low side remain in effect longer than a logical appreciation of the economic realities dictates they should.
It’s hard to imagine a more down economic time than today. If stock prices reflected economic developments, we would today be at one of the lowest P/E10 levels on record, something in the neighborhood of 7. We are at 22! We are at three times where we would be if stock prices reflected economic developments.