>If earnings are a constant share of household incomes, then all he is
>saying is that price/earnings ratios shouldn't go up any more.
>
>At least he didn't say that they had to go down immediately...
No, he didn't. He said: "Other things equal, this condition will involve equity discount factors high enough to bring the rise in asset values into line with that of household incomes, thereby stemming the impetus to consumption relative to income that has come from rising wealth. This does not necessarily imply a decline in asset values--although that, of course, can happen at any time for any number of reasons--but rather that these values will increase no faster than household incomes." The "not necessarily" is a nice touch, since it's hard to think of a historical precedent for a market this highly valued - with participants conditioned to expect 20% annual returns - floating gently back to earth. Or simply slowing to a 6% or so annual growth rate.
Doug