I believe CAPE currently predicts around 3-4% real (you've been misquoting something somewhere back there)HomerJ wrote:Wait, CAPE is predicting 5%-7% REAL? And there are DOOM posts about this?
7% REAL is about the normal historical average for the U.S. stock market... So you're basically saying valuations don't matter.
Oh wait, your graph states that it is showing nominal returns, so inflation is NOT the reason the numbers are so far off... Your 10-year CAPE predictions have been wrong for many of the recent 10-year periods since CAPE went above 20. In fact, the stock market has returned near it's historical average for most of those 10-year periods, even though valuations have been quite high.
What CAPE data do you want to exclude? Japan reaching a CAPE of 100 in the 80s?No, 20 is high, 25 is very high... Unless you're letting the last 23 years skew your thinking...
Here's the historical data BEFORE 1992.
As the US market never experienced a 20+ year bear market in the 20th century, it's reasonable to say valuations never got very high
Your data shows 5% returns over 15 years .. This is perfectly within normal rangesShow a graph with just actual returns, and the CAPE predictions instead of 8 lines all smashed together. I just showed you data that disproved your assertion that we've gotten around 5%-7% the past 23 years, just like CAPE predicted.
How many years does the model have to be wrong before you wonder if something might be wrong with model?
(FYI - The accounting changes that lets 20 be the "normal" number for CAPE could be your saving grace - Adopt that, and the data starts fitting the model again!)
If we get more QE (and it doesn't collapse the economy) we'll get higher returns for longer .. But what the graph should show you is that, at no point does the market make a lasting jump away from estimates .. It overshot in the 80s, undershot in the 60s - but it's always drifting back towards normal
Just like getting 10 heads in a row ... The longer you keep flipping, the more your results will draft back towards 50:50