"In the Q&A session, I asked Nouriel three questions:
I. How can he explain the schmeissing in U.S. equities when, at the same time, certain risk measures (lower bank swap spreads, Libor, junk bond yields, a higher euro, etc.) and risk markets appear to have stabilized?
II. Could the U.S. stock market be attractive in light of generally reduced economic expectations and lower corporate profit assumptions?
III. Could the U.S. stock market be attractive with markets selling at less than 12x realistic 2011 S&P 500 profits vs. an historical average of 15.5x and at 17.0x when interest rates and inflation are quiescent?
On the first question, Nouriel agreed with my observation that, unlike the May swoon, risk metrics had stabilized. I was delighted to hear that he said he now recognizes that his principal role is as an economist, as he has learned over the past few years that there are other influences that affect the equities market and that the stock market and the economy are often (especially on a short-term basis) out of sync. On the second and third questions I asked, he felt that the stock markets were still discounting higher and unrealistic economic growth and corporate profits. I responded that my impression is that economists have ratcheted down economic and profit forecasts -- many of whom are not materially higher than him now. On question three, he admitted that, absent another dislocation, stocks might be cheap relative to history."
in The Street.com
