Category: Think Tank, Valuation

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3 Responses to “Who’s Afraid of Shiller’s CAPE?”

  1. spencer says:

    Very good.

    But if you think we have shifted to a new normal of slower nominal GDP and EPS growth it implies that the CAPE is even more overvalued.

    • Futuredome says:

      But a “new normal” means old normal results. In otherwords, we need to grow less to get the same results. If the US only needs to grow at 2.6% to get the same results 3.3% did 50 years ago, Cape isn’t just overvalued, it is worthless. If the Economy grows at 3.1% in 2016-17, we are in a period of boom and the “crash” is just right around the corner.

      CAPE thinks the world is linear and flat. They can’t adjust for demographics and age. In 1850, the US needed 4% of growth just to get any income growth. Now it is 2.0%.

  2. murrayv says:

    Because of the recent large increase of financial sector earnings as share of tota earnings, and the low financial sector P/E today’s CAPE is understated by about 2 percentage points vs the past. Since the financial sector profit probably detracts from the economy this understatement is significant. To compare with 2000, let alone 1929, todays’ effective comparable CAPE is 28 or 29.