Shiller PE10 too low now -- should be 29

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Browser
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Shiller PE10 too low now -- should be 29

Post by Browser » Tue Oct 15, 2013 10:46 am

According to Hussman, the current value of the Shiller CAPE measure is actually lower than it probably should be. If one agrees with him, CAPE would be at the 96th percentile of it's historical range.
Despite the 10-year averaging, Shiller earnings – the denominator of the Shiller P/E – are currently 6.4% of S&P 500 revenues, compared to a pre-bubble norm of only about 5.4%. So contrary to the assertion that Shiller earnings are somehow understated due to the brief plunge in earnings during the credit crisis, the opposite is actually true. If anything, Shiller earnings have benefited from recently elevated margins, and the Shiller P/E presently understates the extent of market overvaluation. On historically normal profit margins, the Shiller P/E would be about 29 here.
http://hussmanfunds.com/wmc/wmc131014.htm
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jwa
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Re: Shiller PE10 too low now -- should be 29

Post by jwa » Tue Oct 15, 2013 12:16 pm

I feel Rick Ferri raised valid points a couple weeks back and accordingly at this time I am ignoring the Schiller index. It's usefullness will become useful again in the future but not now.

The Wizard
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Re: Shiller PE10 too low now -- should be 29

Post by The Wizard » Tue Oct 15, 2013 12:59 pm

jwa wrote:I feel Rick Ferri raised valid points a couple weeks back and accordingly at this time I am ignoring the Schiller index. It's usefullness will become useful again in the future but not now.
You're not saying that This Time is Different, are you?
Attempted new signature...

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Re: Shiller PE10 too low now -- should be 29

Post by FFFollower » Tue Oct 15, 2013 1:22 pm

What do you plan to do with this information?

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Re: Shiller PE10 too low now -- should be 29

Post by pkcrafter » Tue Oct 15, 2013 2:27 pm

On historically normal profit margins, the Shiller P/E would be about 29 here.

Yeah, and if pigs could fly...

This is what you should expect from a perma-bear. On the other hand, I am somewhat concerned about buy-backs falsely boosting earnings, although I don't think there is enough of that going on to significantly boost the entire market.

Paul
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Re: Shiller PE10 too low now -- should be 29

Post by hsv_climber » Tue Oct 15, 2013 2:52 pm

Hussman has turned bullish last month when he predicted that this market will have ": the possibility of a short-lived but spectacular speculative blowoff".
http://www.hussmanfunds.com/wmc/wmc130923.htm

Of course, some people believe in this noise and think that this time is different.

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Re: Shiller PE10 too low now -- should be 29

Post by Jebediah » Tue Oct 15, 2013 2:57 pm

According to Hussman...

lost me right there.

jwa
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Re: Shiller PE10 too low now -- should be 29

Post by jwa » Wed Oct 16, 2013 11:26 am

The Wizard wrote:
jwa wrote:I feel Rick Ferri raised valid points a couple weeks back and accordingly at this time I am ignoring the Schiller index. It's usefullness will become useful again in the future but not now.
You're not saying that This Time is Different, are you?
NOPE - Not saying that at all. As was pointed out by Rick, trailing earnings over the last 10 years were impacted significantly by a great recession. Then again maybe I am saying this time it is different because of the presence of the great recession being included in the metrics. By other measures, the market is fairly valued so in this sense it is not different this time. It depends which measurement tool one wants to use but at this juncture I am ignoring the one that has the great recession included.

IlliniDave
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Re: Shiller PE10 too low now -- should be 29

Post by IlliniDave » Wed Oct 16, 2013 11:44 am

jwa wrote:
The Wizard wrote:
jwa wrote:I feel Rick Ferri raised valid points a couple weeks back and accordingly at this time I am ignoring the Schiller index. It's usefullness will become useful again in the future but not now.
You're not saying that This Time is Different, are you?
NOPE - Not saying that at all. As was pointed out by Rick, trailing earnings over the last 10 years were impacted significantly by a great recession. Then again maybe I am saying this time it is different because of the presence of the great recession being included in the metrics. By other measures, the market is fairly valued so in this sense it is not different this time. It depends which measurement tool one wants to use but at this juncture I am ignoring the one that has the great recession included.
I think the straight P/E is a bit over 19, a third or so over the historic mean but not near hand-wringing territory in my way of looking at things. Of course, the markets could plunge tomorrow or next year, or soar for a decade.

Not sure what the P/PE Mr Ferri likes is these days, don't know of a source for it. But it makes sense that the captured recession lowers the denominator resulting in a higher P/E10 multiple than current conditions would suggest.
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