SP500 at 25x P/E ? Markets for the week ending 5-Sep-08

Market Commentary
- Wall Street had its steepest decline in more than two months on Thursday, as more signs of weakness in the labour market and increasingly sluggish growth overseas fuelled fears about the ability of the U.S. economy to stage a recovery. Weekly government data showed an unexpected jump in the number of filings for jobless benefits and a decline in non-farm payrolls.
- The president of the European Central Bank, Jean-Claude Trichet, said euro zone data points to weakening growth and slashed forecasts
- Asian stocks fell consecutively for a week setting the biggest weekly decline in a year

Strength in US dollars tied to global FX reserves ?
Trend: rising reserve accumulation appears to be peaking amid increasing signs of global slowdown,
- If growth of global FX reserves has indeed peaked: less reserve diversification away from USD in favour of other major currencies expected
Previously : Inflationary concerns and tight monetary policies kept Asian currencies supported,
- But South Korea, Thailand, Philippines faced with weakening currencies has reduced need for central banks to intervene to stem the rise of their EM currencies
- Russia and Thailand has been dipping into their coffers to support their currencies
- Impact of reduced growth expectations: triggering waves of capital flight from EM currencies

S&P P/Es at 25x ?
A combination of rising prices and falling earnings caused S&P 500 valuations to surge more than 20 percent this quarter, the biggest increase of any major market, making them the most expensive since November 2003. The index's price-earnings ratio rose above 25 three times in the last five decades, data compiled by Bloomberg show. The last was in 2001, during the bear market that followed the bursting of the dot-com bubble. The increase in valuations preceded a plunge that helped erase about half the market value of U.S. companies.

Eric Tan, London