Equity markets worldwide lost $6.3 trillion or 12% of their values in 2011. Now, obviously, this does not mean that the world lost $6.3 trillion of wealth evaporated from the planet. Money can move between different types of markets in any given time.Governments could be trading equity prices for financing bloated government debts in 2012. With worldwide governments borrowing twice as much in 2012 as they did in 2005, it's going to be harder for institutional investors who want to lend to the government, to buy stocks in 2012.
This could be a possible reason behind markets trading at so low PE ratios. Of course, Europe is playing a huge role in this as well. Either way, government spending and the amount of public debt that is issued will play a huge role is where the equity markets head in 2012.
