The Federal Reserve Bank of San Francisco just came out with a scary bit of research regarding future price earnings ratios for the stock market. First, they plotted P/E ratios since 1954 against what they call the M/O ratio, the ratio of the middle aged (aged 40-49) to the elderly (aged 60-69):
As you can see, the P/E ratio generally followed the M/O ratio. The thinking here is that people aged 40-49 are in their prime in terms of investing for the future while those 60-69 are more likely liquidating investments in order to fund their lifestyles. So the higher the M/O ratio, the better for the stock market. Now check out what happens when they model out the P/E ratio going forward using expected demographic data from the Census bureau:
That is not even slightly a good thing as P/E's can be expected to fall by another third. We've already lived through a lost decade stock-wise and it looks like we have another couple decades to go based on this data. Everybody start having more kids, quick!