If they’ve read most of the market commentary these past few days, cartoonists are no doubt sketching in the image of the investor on the window ledge contemplating the final margin call.

Someone should tell him to step back inside and check the figures instead of the headlines, especially a Bloomberg report that S&P 500 stocks are now at their cheapest level in 16 years:

D.A. Davidson, LPL Financial Services and Credit Suisse Group, which manage a total of $771 billion, are bullish after the biggest (one-week) decline in the Standard & Poor’s 500 Index since September 2002. The benchmark for American equity is valued at 15.4 times estimated profit, the lowest since January 1991, according to data compiled by Bloomberg…

Philipp Vorndran, who manages $598 billion as investment strategist at Credit Suisse Asset Management in Frankfurt, said subprime defaults won’t spread to higher-rated debt and predicted credit markets will stabilize.

“There is a good opportunity to move back to a bullish equity position in a month,” Vorndran said. “The stability of financial markets is not at risk.”

The current sub-prime shake-out could well be as temporary and as much of a buying opportunity as the “China Syndrome” dip in February. With prospective PEs cheap by American standards and bond yields back down, the bears shouldn’t be in control for long.

The key proviso is that the US doesn’t slip into recession – and there’s no sign of that. Macquarie Bank international economist Mark Tierney argues that if the US was going to go negative, it would have already:

  • A huge downturn in housing and a drag from inventories normally would have been enough to push the US economy into recession. But encouraging positive contributions from net exports and business investment were important offsets.
  • Undoubtedly there will be claims that business investment will falter. But there are compelling reasons to expect net exports to remain strong. Along with a positive contribution from inventories this should be sufficient to keep the US chugging along at about 2%.
  • Now the common view on Wall Street is that 2% is “sub-par”. Unlike golf, however, this is viewed as an undesirable result. Yet is the US economy really breaking par?
  • Well this is certainly not evident from the labour market. US GDP has been slowing long enough for some impact to show up in the labour market. Employment growth has certainly eased. Yet the unemployment rate has not budged.

Tierney believes 2 per cent growth is about all the US is capable of. And with the rest of the world rocketing along, that’s plenty.

So don’t jump – unless it’s into a pool of money.