IRST the good news. Shares are no longer ridiculously overvalued. Now the bad news. Despite tumbling by nearly a quarter from last year's peaks, equities on both sides of the Atlantic are not yet a buy.
Just as they overshot on the upside, they will probably overshoot on the downside, too.
There is no exact science here. But, at present, shares are probably close to fair value in the UK, although still overvalued in the US.
A good indicator of this is to look at what sort of long-term return investors should be prepared to accept from stocks. About 6% a year in real terms seems a good stab. That is, of course, not as great as investors got used to in the bull market. But it would be a premium over the 2% to 3% real return investors can expect from bonds.
Fortunately, in the UK, investors can now expect to get 6% real over the long haul. After all, the earnings yield on the FTSE 100 - this year's estimated earnings divided by the index level - is almost exactly 6%. But in the US, the earnings yield is only about 5.3%. To deliver a yield of 6%, the S&P Composite would have to fall to 1000 - another 12% drop.
If this were all, shareholders could breathe a sigh of relief. But the irrational exuberance of yesteryear is in danger of turning into irrational despondency.
Now that investors have been burnt, they will need an extra inducement to plunge back into shares. That means further falls are likely.
Of course, one only ever pinpoints the bottom of the market by luck. But it would be surprising if shares did not overshoot at least 10% below fair value. On that basis, investors should wait until the S&P falls below 900 and the FTSE 100 drops below 4900 before plunging back in.
If you think British Telecom is having a rotten time, take pity on KPN. The Dutch telecoms group, which reports results this week, has its own debt crisis. But it is much more severe than BT's - and KPN has fewer ways out.
Consider BT's options. It could let its credit rating slip to BBB, skip its dividend, launch a rescue rights issue or float its wireless business. But KPN can't really do any of these. Its credit rating has already slipped to BBB. It has already skipped its dividend. It already sold a huge slug of equity last November since when its shares have declined by a third.
And, as for its wireless business. …