Comments on: Stock market valuation is stretched on long-term basis http://www.investmentpostcards.com/2010/03/16/stock-market-valuation-is-stretched-on-long-term-basis/ Prieur du Plessis’s international investment blog Sun, 29 Jan 2012 22:06:48 +0000 hourly 1 http://wordpress.org/?v=3.1.1 By: Frank Whttp://www.investmentpostcards.com/2010/03/16/stock-market-valuation-is-stretched-on-long-term-basis/comment-page-1/#comment-25516 Frank W Wed, 17 Mar 2010 01:50:36 +0000 http://www.investmentpostcards.com/?p=17874#comment-25516 Thanks for this, Prieur! Thanks for this, Prieur!

]]> By: Paul Hanlyhttp://www.investmentpostcards.com/2010/03/16/stock-market-valuation-is-stretched-on-long-term-basis/comment-page-1/#comment-25513 Paul Hanly Wed, 17 Mar 2010 00:38:16 +0000 http://www.investmentpostcards.com/?p=17874#comment-25513 Sorry but Schiller's work largely ignores inflation and bond yields when looking at the PE ratios. The long term average in your chart shows very low PE's in the period 72 to 1990. But during this period inflation was very high as were interest rates including bond yields. The long term relationship between bond yields (or more particularly the implied Bond PE derived from the yield) and PE and PE10 is a more relevant measure. If you think PE's are going to fall significantly you must expect a significant increase in bond yields and this would only be justified by a prediction of significant increases in inflation.I would be happy to send charts of the relationships between PE's and bond yields derived from Shiller's data but essentially at present shares are about fairly priced or slightly cheap based on bond prices, even allowing for some increase in bond prices if the economy starts to really pick up. Sorry but Schiller’s work largely ignores inflation and bond yields when looking at the PE ratios. The long term average in your chart shows very low PE’s in the period 72 to 1990. But during this period inflation was very high as were interest rates including bond yields. The long term relationship between bond yields (or more particularly the implied Bond PE derived from the yield) and PE and PE10 is a more relevant measure. If you think PE’s are going to fall significantly you must expect a significant increase in bond yields and this would only be justified by a prediction of significant increases in inflation.

I would be happy to send charts of the relationships between PE’s and bond yields derived from Shiller’s data but essentially at present shares are about fairly priced or slightly cheap based on bond prices, even allowing for some increase in bond prices if the economy starts to really pick up.

]]> By: jeffhttp://www.investmentpostcards.com/2010/03/16/stock-market-valuation-is-stretched-on-long-term-basis/comment-page-1/#comment-25501 jeff Tue, 16 Mar 2010 15:43:49 +0000 http://www.investmentpostcards.com/?p=17874#comment-25501 From my work, it appears that PE's do not "average" rather they "trend" either upwards or downwards until they reach untenable valuations, thus triggering either a Secular Bull or Secular Bear market. The downward slope of current PE's suggest we're MORE than just 25% overvalued, but that we're still trending towards a much lower PE. From my work, it appears that PE’s do not “average” rather they “trend” either upwards or downwards until they reach untenable valuations, thus triggering either a Secular Bull or Secular Bear market. The downward slope of current PE’s suggest we’re MORE than just 25% overvalued, but that we’re still trending towards a much lower PE.

]]>