An outright collapse in the US Economy and our capital markets -OR- no capital appreciation over the next 10 Years? Choose your poison. While a terrible timing tool, Shiller’s CAPE index suggests that the stock market in incredibly overpriced. Shiller states……..
“Even though it’s high, I still think stocks ought to be part of someone’s portfolio … We’re just not living in the best of times. Momentum is weakening in housing, stocks look overpriced, bonds are paying poorly — there’s risk there too. There’s no easy way to win in this market, so I’m thinking you have diversify and probably keep something in stocks.”
While CAPE is worthless at identifying timing, our mathematical and timing work tends to be more precise. Again, our work shows a severe bear market between 2014-2017. When it starts it will very quickly retrace most of the gains accrued over the last few years. If you would be interested in learning exactly when the bear market will start (to the day) and its subsequent internal composition, please CLICK HERE
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Daily Ticker Writes: Shiller: CAPE ratio is high but you should still own stocks
Stocks started Monday in positive territory after taking a break from the selling last week when the Dow (^DJI) and Nasdaq (^IXIC) both rose 2.4%, posting their biggest weekly gains since December and November,respectively. The S&P 500 (^GSPC) meanwhile rose 2.7%, its biggest weekly gain since last July. And indexes tracking sectors that have been hard-hit recently including biotech and Internet stocks climbed more than 3%.
So what’s next?
Some market watchers have pointed to Yale professor and Nobel Prize winner Robert Shlller’s cyclically-adjusted price/earnings ratio, or CAPE, to raise concerns that stocks are expensive. The Daily Ticker’s Henry Blodget has used this datapoint in his argument that we’re likely to have lousy returns for the next seven to 10 years or possibly a severe pullback shorter term (he points out that valuation measures are a terrible timing tool).
In the accompanying video, Shiller tells us that the “CAPE index is rather high,” but adds that this ratio first achieved public prominence when he and his colleague presented it to the Federal Reserve board in 1996. He says CAPE was kind of high then too, but then it kept going up for almost three more years.
Shiller’s takeaway? “Even though it’s high, I still think stocks ought to be part of someone’s portfolio … We’re just not living in the best of times. Momentum is weakening in housing, stocks look overpriced, bonds are paying poorly — there’s risk there too. There’s no easy way to win in this market, so I’m thinking you have diversify and probably keep something in stocks.”
Check out the accompanying video to see why he is wary of the hype surrounding tech stocks, and if he thinks the market is rigged due to the advantages exploited by high-frequency traders as Michael Lewis posits in his new book Flash Boys.