Global stock rout!
What does a P/E really represent? That represents how much of that company's earnings you in effect buy by buying their stock. In big, old companies those earnings are distributed in the form of a tiny little chunk of cash for each share owned or, in newer companies that are growing quickly, the earnings might be reinvested in the company resulting (hopefully) in more earnings down the line. But the point is, if we knew for sure a company was never going to grow, and if there were lots of other opportunities out there, the P/E of a company should basically go to 1.
But in reality there's too much money out there, and no place for all of it to go. Of course, a lot of it goes to non-stock investments, such as real estate, paintings and other stuff that the wealthy hope will appreciate in value some day. But after the money flows into all of those other investments, there's still far too much of it flooding the market, searching for opportunities. As a result, stock prices no longer truly reflect what investors believe will ultimately be the earnings of the companies whose stock they buy. Rather, investors now try to predict what level of P/E other investors will push the stock to, and now that's where the price goes. P/Es of 20 for even large companies are quite common.
Now that so much money has been parked on stocks that are priced in ways that have very little relationship to their actual earnings, it's almost like an abundance of heat and moisture in a summer atmosphere: It's just waiting for some sort of trigger to make it all rain. In other words, what's happening now is that everyone is trying to yank their money off of all those stocks so that some other sucker is left holding the empty bag. But the real problem now is that there really isn't any place to put all of that cash now: There aren't enough emerging markets and stocks to act as a good place to put that money. So the money that has been pulled off today must inevitably find it's way back into the market sooner or later, and probably sooner.
2008, of course, was different: The banks were broken, often to the point of beginning to fall apart just like the World Trade Center after the jets slammed into its towers. But this time things are different: The banks aren't under any significant fiscal stress yet, so they're a safe place to put cash for now and, so, the money must come sliding back into the market.
What's the point of this? Why am I mentioning this? Am I trying to predict the market? No. The reason this dynamic is important because it certainly appears that the markets will remain volatile unless there become alternative places for all that money to go. In other words, the world will continue to be a very unstable place unless and and until a lot more humans start opening businesses and create, not just job opportunities, but investment opportunities as well. I find it both strange and ironic that the vast concentration of wealth in the hands of the few is the greatest danger to that wealth itself. In other words, we need to get more of that capital into the hands of the world's 99% and they also need to learn how to work with it and build it into businesses.