by Joe Del Casino

Created on: April 11, 2009   Last Updated: April 12, 2009

The odds are mounting against a return to DOW 14,000 anytime soon, which would be a 75% increase from where it stands today. There will be short-term bull rallies, but it seems likely that the bear that gripped the market in 2007 will hold on for many years. The conceptual if rudimentary explanation for my market pessimism, especially over the long term, is illustrated by the simple formula: Price = Earnings x Multiple. Stock market prices (Price) are the result of a complex and dynamic relationship between actual after-tax corporate earnings (Earnings) and the extent to which those earnings are expected to grow over time, which is reflected by a stock's price/earnings multiple (Multiple). Obviously, stock investors would like to see all their stock's earnings and multiples expand steadily over time.

No one is predicting corporate earnings will rise meaningfully during the next couple of years. Even though the most recent consensus view is that the current recession may be over by Fall 2009, unemployment should be expected to rise beyond that time period. Continued falling home prices and exorbitant consumer debt levels will curtail consumption and earnings levels accordingly. The Government's Stimulus Plan may ease some of the economic pain, but eventually tax rates will need to rise to pay for the currently exploding Government deficit already exceeding $1 Trillion.

Stock multiple expansion seems unlikely too. Although both macroeconomic and company-specific factors dictate their magnitude, multiples generally rise when inflation and interest rates are low or falling and overall economic and political risks are perceived to be minimal or contained. Inflation is low right now because of worldwide recession and deflation in global real estate values. Interest rates are artificially low because of the concerted efforts of the world's central banks to pump unprecedented liquidity into global capital markets. Many observers expect those conditions to abate once the financial crisis and recession subside. Also, as the BRIC (Brazil, Russia, India, China) economies and others catch their breath and resume their heady economic growth and concomitant demand for resources, their growth will once again place significant price pressure on world commodity markets, especially oil, industrial metals and food. Consequently, accelerating worldwide inflation is reasonable to assume for many years to come. Inflation and growing government deficits around the world will inexorably

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