Posts tagged 'Cape'

S&P 4,236…

We’ll see your bullish forecast, and we’ll raise you, Brian.

That’s Brian Belski, the BMO strategist who thinks that 10 per cent annual returns for the next decade are plausible for the US stock market. Read more

Five ways with valuation

A quiet reformation continues.

One of the central articles of investing religion — that a forward price earnings ratio is a useful indicator of stock market value — is under sustained intellectual assault. Read more

Smithers: Yellen and hindsight capital

This is an abridged version of a post by Andrew Smithers for his FT blog, one that lays out why using next year’s PE ratio to value the stock market is absurd. Taking the Fed Chair to task for her language, it is also ripost to the critique of long term valuation measures we have also featured.

Janet Yellen, the Fed’s head, rather bizarrely used the prospective price/earnings ratio, one of the weakest of all measures, to justify a statement that Wall Street was not overvalued. (This was doubly strange since her husband, George Akerlof, co-wrote a book with Robert Shiller, who has championed a much better measure…

I quote from a recent Buttonwood column in The Economist. Calling Ms Yellen’s comment “strange” seems very kind. Many people would rate the use of bad data in preference to better as irresponsible rather than strange, particularly when it carries with it the authority of the US Federal Reserve. Read more


To take a tiny bite of a very large subject, what is the ideal asset allocation for a long-term minded investor?

Providing an answer has made a lot of people a lot of money over the years, typically when couched as a response to another unanswerable: how much risk to you want to take? (Er, a bit, but not too much. What do most people do?)

The typical answer that is sold, however, has changed over time as well. Read more

Bonds for the long run

If we know one thing about investing, it’s that time and the power of compounding make stocks an essential holding for savers, right?

Well, maybe not, at least when the choice is to hold bonds with a reasonable yield instead and the excess returns from stocks have been on a long term downward trend, something suggested by this presentation from Claude Erb, the West Coast based manager of TR.

Which is going to take us on a mostly chart based and, we hope, relatively painless tour of a wonky concept — the equity risk premium. But it’s also a way to come at those arguments about long term measures of stock market valuation, the Cape ratio and Shiller PE, from another direction. Read more

Hibernating bear sustenance (part one, the US)

So yes, the Cape measure of long term valuation might have some flaws, but don’t expect them to keep a good bear down. The latest from Andrew Smithers provides some more (over) valuation points to chew on. Read more

Worse than the Great Depression? The Cape Crusade continued

The battle to claim the long term is in full force, focused on the use, interpretation and adjustment of the Cape Ratio to value the US stock market.

Pessimists hold dear the Cyclically Adjusted Price Earnings ratio, a value calculation using average annual profits over 10 years, as a signal that equities have been overpriced pretty much since since the first Bush administration. Damn you irrational exuberance, the day of reckoning will come, just you wait… Read more

A moderately bearish Cape crusade

OK, we’ll admit it, when it comes to long term measures of stock market valuation something might actually be different this time.

Which prompts a question: is a moderately negative case actually worse for market enthusiasm than predictions of disaster that can be dismissed out of hand? Read more