Category: Valuation

When Mean Reversion Fails

Are equities overvalued? Is the economic expansion long in the tooth? — In attempting to answer these questions, we often look to averages: -What is the average valuation? -What is the average length of an expansion? We then take the present environment and compare that to the average past to make definitive statements about the […]

Is This 1929 or 1997?

The CAPE Ratio or “Shiller PE” just crossed above 30. In layman’s terms, what does that mean? Stock valuations in the U.S. are high. How high? Going back to 1871, the only periods in history with a CAPE above 30 were as follows (data from Robert Shiller): August to September 1929 June 1997 to March […]

We’ve come a long way, baby. In October 2009, the U.S. Unemployment Rate stood at 10%, the highest level since the deep recession in the early 1980’s. Since then, it has moved all the way down to 4.7%. Payrolls have now expanded for 77 consecutive months, by far the longest streak in history. With economic […]

Valuation and Volatility

U.S. stock valuations are rising. One way to measure that is the CAPE ratio, which smooths earnings over a ten year period. This ratio for the S&P 500 hit 28.7 this week, which is in the 94th percentile going back to 1928. The only periods in history with a higher CAPE ratio were July through […]

“Stocks are undervalued.” “Stocks are overvalued.” These are two of the most common sayings on financial TV, trumpeted by bullish and bearish pundits on a daily basis. What value do they provide to the average investor? At best, none at all, and at worst they may lead some to take deleterious action in their portfolio. […]