Barton Biggs appeared on CNBC this morning, one of a long line of strategists who are attempting to calm investor fears by stating confidently that "It's not the end of the world. The Global Economy is not going to implode."
I would say that's setting the bar pretty low for conditions that would foster a stock market rally. It's not the end of the world either if you get mugged and beaten on the street corner. Still, it's not a reason to engage in a massive celebration.
I'm not sure it would take the End of the World to bring the market back to normal bear market Price to Earnings ratios of around 6-8, which generally occur at the end of de-leveraging periods. And if you can't see we're in a massive de-leveraging period you shouldn't be in the markets at all. (Leverage mean debt - de-leveraging means working off overhanging debt)
As normal de-leveraging continues down to a 6-8 percent PE - you're looking at about Dow 5000. And that doesn't count in the fact that earnings are now extremely low quality as accounting standards have been systematically distressed in order to boost nominal earnings.
That doesn't stop the top Wall Street Strategists from predicting a tremendous celebratory Wall Street Party by the end of the year:
Strategists Sticking With 17% S&P 500 Gain on Higher Profit
Wall Street has never been more sure that the Standard & Poor’s 500 Index will rally in 2011, even after speculation the U.S. economy is heading for a recession prompted the biggest plunge since the bull market began.
Chief strategists at 13 banks from Barclays Plc (BARC) to UBS AG (UBSN) see the benchmark measure of American equity surging 17 percent through Dec. 31, the average estimate in a Bloomberg survey. Their projection that the index will reach 1,401 hasn’t budged in four weeks, while mounting concern U.S. growth is slowing drove the S&P 500 down 11 percent since July 22, including yesterday’s 4.8 percent tumble.