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It's "freak"..."weather-freak."
I get a D- for reading comprehension; I always read it as What the Fork. Obviously I missed the r in weather.
The ten year span in the Shiller PE (aka Cyclically Adjusted PE Ratio) does some nice smoothing on a business cycle (a peak to trough can be around ten years, YMMV). However, at this juncture, I'm still at a loss as to why I care about earnings from 10 years ago as the current PE (1 year trailing) is rational (less than 16). A lot of those earnings 10-5 years ago were FIRE voodoo goosed by free money via the securitization chain. If the current PE remains rational moving forward, we should see a steady decline in Shiller PE moving forward as we 'lose' the craziness of the mid 2000s.
And that's a big if, as we're still fighting the scatter chart you posted. Also, I don't believe Crisis Eurozone is over until we see Eurobonds, and that's probably a ways off.
freak80
2012 Apr 13, 4:16am
I get a D- for reading comprehension; I always read it as What the Fork. Obviously I missed the r in weather.
It's ok. "Honest Abe" called me "what the f***er 80" so you're mistake is pretty mild.
However, at this juncture, I'm still at a loss as to why I care about earnings from 10 years ago as the current PE
My understanding is that it's the average annual earnings (inflation adjusted) of the past 10 years, not the 1-year earnings of 10 years ago.
See: www.multpl.com/faq
Weatherman, you are correct in your understanding. When I say "earnings from 10 years ago", that is shorthand for "the 1/10 contribution of inflation adjusted earnings from 10 years ago". My point is that half the current trailing P/E is made up of 'juiced' earnings from the mid-2000s. Shiller would probably respond, "You borrowed from the future back then, pay the piper now, da Shiller PE don't lie". He may be right. Paying the piper happens in hundreds of small ways as debt is repudiated; so, perhaps I'm too optimistic now.
freak80
2012 Apr 13, 6:34am
Weatherman, you are correct in your understanding. When I say "earnings from 10 years ago", that is shorthand for "the 1/10 contribution of inflation adjusted earnings from 10 years ago".
I also get a D- in reading comprehension.
My point is that half the current trailing P/E is made up of 'juiced' earnings from the mid-2000s. Shiller would probably respond, "You borrowed from the future back then, pay the piper now, da Shiller PE don't lie".
True, but the reduced earnings during the crash are also included by now.
Regardless, I still say stocks are expensive. With alternative investments paying so little, I think folks are piling into stocks. I don't want to "follow the crowd", that's a good way to lose money. If interest rates (real interest rates) go up, bond prices will drop and ordinary bank CD's will become more attractive and money will flow out of stocks.
I'm mostly in cash right now. It's the worst asset class right now (thanks to inflation), except for all of the others. ;)
If you factor in 2009's negative earning, the P/E is very high.
Wall street is saying that negative earning shouldn't count.
ArtimusMaxtor
2012 Apr 14, 5:52am
I'm getting nervous because only Nazi's grow food now. Vincente made me aware of that fact. Thank you for sharing your wisdom and experince. I have this recurring dream of Hitler in a cornfield planning death camps for whoever dares to think about planting some beans. Its really rough out there in farmland I agree. Klan rallys and such are happening everywhere.
ArtimusMaxtor
2012 Apr 15, 4:35am
mE thinks since they are running a huge deficit more than their 43 predecessors. But maybe not the last predecessor. Maybe we might want to condsider not invading anyone anymore. The "wolf pack" really dosen't need us that bad. They could get say oh Korea or say Romania to get on point from now on. Everyone needs a turn on point its U.S. military etiquette.
So much for my opinion on leadership do anything but for Gods sakes don't stop stealing. If Ivan and Aristotle ever stopped stealng and invading well that will probably be when Jesus comes back. Although Aristotle will never acknowlege Ivan cause thats in bad taste in ANY church.
I hope you liked Hitlers tractor I found it on Ebay. Some people in Kansas own it I guess. I wouldn't buy it you may not come back.
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Stocks are almost back up to where they were during the frothy days of 2007. There are still plenty of "Black Swans" around: European headline risk, China real estate, the usual geopolitical crap, and $4 gasoline. Anyone else getting nervous?
#housing