Three Great Graphs

I felt that these three great graphs were important to share. Thanks to the guys over at "The Big Picture" for the great information.

1) The first graph relates to historical P/E ratios. In light of recent trends this graph makes the market as a whole look fairly cheap in spite of the strong bull market of the past 4 years.
2) The second graph goes a long way towards explaining why the market still looks cheap. Basically corporate earnings growth has been strong since 2Q2002. The most interesting part of this graph however is the reversal in earnings about half way through the 4Q2006 earnings season. Basically what started as another huge earnings quarter was deflated back down under 10%. While growth hasn't screeched to a halt just yet, the last wave of earnings results left much to be desired.



3) The third graph relates to NYSE Member Firm Margin levels. Basically it tracks how much money is being borrowed to purchase securities. It is useful as a way to track the level of confidence of investors and it is a fairly good barometer of when a market may be overheating. The interesting note here is that margin debt is hitting levels not hit since 1999-2000, but because of strong earnings growth and low P/E 's there may be a lot of room to grow here. It will be interesting to see how high margin levels will get before we see some sort of correction in the market.