Is this a good time to buy stocks?

This is the question one everyone's mind, after the gut-wrenching decline of last week and the equally shocking rally on Monday.

I think there is a good opportunity to buy stocks here, but it really depends on your time horizon. No one knows if the market will come back in 5 years, but if you can wait 10 years, then this may be a good time to buy.

Here are the reasons why the market could come back in 5 years:
1. The normal fundamental drivers should be strong in 5 years. We would need corporate earnings to be good, inflation to remain low, and interest remains to remain low/moderate. Corporate earnings will decline in the near term, but global growth should resume in the medium term. Inflation has been driven by rising commodity prices lately, but that has proven to be temporary, with oil falling back below $100. More importantly, wage inflation has not occurred, meaning the inflationary expectations remain stable. Finally, interest rates are likely to go up, which is bad for stocks, but they should remain moderate.
2. Price/earnings valuations are low. Earnings will have to be cut, so valuations are not as good as they first appear, but, they're still below average (currently closer to 10 than the historical average of 15, and much better than the 2001 bubble of 30). While there are some bear markets in which P/E ratios reached the single digits, this did not happen in most bear markets.
3. The typical bear market goes down less than 40% , and we've already reached that point. For some historical context, look at:
http://www.nytimes.com/2008/10/12/business/12stox.html?em
http://www.nytimes.com/interactive/2008/10/11/business/20081011_BEAR_MARKETS.html

But, there is a possibility that the market won't come back for 10 years. If you want to put more money in now, you have to be prepared for that possibility. Here's are the reasons why the market might not come back quickly:
1. There have been 10-year periods when stocks did nothing. The 1930s and 1970s are good examples of this. However, the 1930s was the Great Depression, which shouldn't happen again since government authorities are trying everything they can to fix the economy, unlike in 1929-1933. And in 1970, earnings growth was low and inflation and interest rates were high, so it was not a good time for stocks.
2. The "credit crunch" is the really unique part of what's going on. Beyond the stock market crash, the fact that banks have stopped lending to each other will eventually crash the economy if not fixed. The rapid bank failures have scared all lenders and all banking and credit-related activity has stopped, which is unprecedented - this has not happened since the Great Depression. Will the recently announced bank recapitalizations in the U.S. and Europe get banks lending again? No one honestly knows.
3. If the government can't get banks lending again, then the economy is in for an extremely bad time, for a long time - like what happened to Japan in the 1990s. This is the single biggest question about the crisis. If the government can get the bank lending going again, then there's a good possibility the economy will be back to normal in 5 years. If not, then we're looking at 10 very painful years before a full recovery.

So which it be? Stay tuned.