Improved consumer confidence could see U.S. stocks 20% higher in 2012 . . .

Amid the fear driven market activity there has been a remarkable improvement in consumer confidence. The degree of improvement somewhat mimics that seen coming out of the bottom in early 2009.  Rising consumer confidence has been at least coincident with rising P/E multiples in the past.  The analyst responsible for the following charts, Prieur Du Plessis (see his note here), suggests that consumer confidence should continue to rise in 2012 back to 2006/2007 levels in the area of 80.  The historical relationship of confidence to the “Cyclically Adjusted P/E Ratio” (basically a 10 year smoothed P/E ratio) suggests that the P/E ratio would expand by as much as 25% in 2012.  This translates to a gain in the S&P 500 of ~20%.  Jeb Terry, Sr. January 1, 2012

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