[jyl]

My two cents:

If global governments and central banks can avert collapse of banking system and thus prevent quasi-depression, then even if we get a major recession, many stocks look to me like screaming buys. I am seeing scores of stocks at 8X P/E, 0.5X P/S, 15% FCF yields, 4-6% dividend yields. Market P/E is around 11.3X on 2008E (using SPX/SP50), similar to trough of 1990/91 recession. Looks like 10.3X on 2009E but the consensus earnings for 2009E are optimistic (do you think SPX/SP50 2009 earnings will grow +10%?)

If not, then I can see market going to P/E of 1970s or even 1930s, with a very severe recession/quasi-depression, and very high "true" interest rates (treasury yield may be low but that won't reflect true cost of money to companies/consumers). In those periods, market P/E was 5-8X. And the earnings will be considerably worse than consensus thinks.

So, I want to see banking system and credit markets improve, before I bet on a sustainable market recovery (as opposed to an oversold or short-covering rally). The easiest things to watch are LIBOR, LIBOR-Tbill spread, CP rates and issuance, Corporate-Treasury spread, and CDS, so stock market will take its cues from those.