Jeff Gundlach: A Survey of the US Capital Markets
Robert Huebscher
January 27, 2009

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Gundlach also provided data for the US equity market (see below) that showed one-year trailing price-to-earnings ratios for the last 150 years.  “The market is not cheap,” he said — for it to be cheap, P/E ratios would need to be in the single digits.  He noted, for example, that in 1982 P/E ratios declined to six, and he suggested that P/E ratios would need to decline to comparable levels for equity market valuations to be consistent with current valuations in the fixed income markets.  “The equity markets do not make sense in a historical time frame,” he said.

In spite of these attractive opportunities, Gundlach said “Nothing says get out of cash.” “Do not pour into high-risk sectors until commodities and the dollar move differently.”

Gundlach also said that he expects inflation will arise sooner than most people think. Although he said the common view among large asset managers has changed from inflation to deflation over the last six months, Gundlach is wary. “I am always skeptical of a 180-degree turn,” he said.  “There is so much monetization going on.  Inflation will happen in 2009 or 2010.”
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