Robert Shiller tries to understand why stocks are ‘very expensive’ - News and Current Events | futures trading

Go Back

> Futures Trading, News, Charts and Platforms > Traders Hideout > News and Current Events

Robert Shiller tries to understand why stocks are ‘very expensive’
Started:August 18th, 2014 (09:05 PM) by kbit Views / Replies:96 / 0
Last Reply:August 18th, 2014 (09:05 PM) Attachments:0

Welcome to

Welcome, Guest!

This forum was established to help traders (especially futures traders) by openly sharing indicators, strategies, methods, trading journals and discussing the psychology of trading.

We are fundamentally different than most other trading forums:
  • We work extremely hard to keep things positive on our forums.
  • We do not tolerate rude behavior, trolling, or vendor advertising in posts.
  • We firmly believe in openness and encourage sharing. The holy grail is within you, it is not something tangible you can download.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community. It's free and simple, and we will never resell your private information.

-- Big Mike

Thread Tools Search this Thread

Robert Shiller tries to understand why stocks are ‘very expensive’

Old August 18th, 2014, 09:05 PM   #1 (permalink)
Elite Member
Aurora, Il USA
Futures Experience: Advanced
Platform: TradeStation
Favorite Futures: futures
kbit's Avatar
Posts: 5,839 since Nov 2010
Thanks: 3,275 given, 3,321 received

Robert Shiller tries to understand why stocks are ‘very expensive’

“The United States stock market looks very expensive right now.” And with that, Yale professor Robert Shiller is at it again, telling us to worry.

He’s got plenty of company these days among those who fear this bull market can’t possibly keep going. Shiller’s particularly uncomfortable about the CAPE ratio (cyclically adjusted price-earnings), a stock-price measure that he helped create. He said something similar in June. (Just Google Robert Shiller bubble for more instances of his bubble theories.)

Otherwise known as the Shiller P/E, the ratio basically takes average inflation-adjusted earnings for the S&P 500 SPX over the previous 10 years. In Shiller’s New York Times article from Saturday, he notes that when he touched on this topic over a year ago, that ratio stood around 23, far above its 20th-century average of 15.21. It now stands at 25, a level that since 1881 has only been surpassed in three other periods — the years surrounding 1929, 1999 and 2007. And we all know what came next after the market peaks in those years.

Shiller says the CAPE was never intended to indicate timing on when to buy and sell, and that the market could remain at these valuations for years. But given that this is an “unusual period,” investors should be asking questions, he says.

His question: Given that the ratio shows valuations have been elevated for years, are there legitimate factors that could keep stock prices high for decades longer? He points that his own questionnaire surveys show investors are getting more worried. Other than that, unfortunately there is no “slam-dunk” explanation for these high valuations, says Shiller.

“I suspect the real answers lie largely in the realm of sociology and social psychology — in phenomena like irrational exuberance, which, eventually, has always faded before,” says the Nobel-Prize winner. “If the mood changes again, stock market investments may disappoint us.”

Analysts at Bank of America Merrill Lynch said they remain constructive on the S&P 500, which is trading at a forward P/E multiple of just over 15. They said that’s not out of whack with its historical average, though, of course, they don’t address the Shiller P/E.

On Main Street (otherwise known as the reader comments attached to the New York Times article), theories abound:

“…The liquidity pumped in by the Fed is making valuations based on fundamentals impossible…” — Ashwin Kalbag.

“…Many are concerned that they might lose their jobs to cost-cutting, or that they might eventually be replaced by a computer or robot or website. Such anxiety might push them to try to make up for these potential shortfalls by investing in stocks and bonds — even if they worry that these assets are overvalued.” — david

“…Stocks are all we have. And there is a lot of cash on the sidelines to support values.” RBA

And one reader pointed out that really, what on earth do you do with Shiller’s type of analysis if you’re a truly long-term investor, thinking 10 to 40 years ahead?

“…I had a friend who, in around 1997, looked at ratios like Shiller’s and cashed out of stocks when the Dow approached 6,000. He was absolutely right, the market was severely overvalued — but meanwhile, the Dow zoomed to 11,000 — and even in the great correction of 1999-2000 never sniffed 6,000 again. ” — Tom

Robert Shiller tries to understand why stocks are ?very expensive? - The Tell - MarketWatch

Reply With Quote

Reply > Futures Trading, News, Charts and Platforms > Traders Hideout > News and Current Events > Robert Shiller tries to understand why stocks are ‘very expensive’

Thread Tools Search this Thread
Search this Thread:

Advanced Search

Upcoming Webinars and Events (4:30PM ET unless noted)

An Afternoon with FIO trader bobwest

Elite only

NinjaTrader 8: Programming Profitable Trading Edges w/Scott Hodson

Elite only

Anthony Drager: Executing on Intermarket Correlations & Order Flow, Part 2

Elite only

Adam Grimes: Five critically important keys to professional trading

Elite only

Machine Learning Concepts w/FIO member NJAMC

Elite only

MarketDelta Cloud Platform: Announcing new mobile features

Dec 1

NinjaTrader 8: Features and Enhancements

Dec 6

Similar Threads
Thread Thread Starter Forum Replies Last Post
Stocks Better Investment Than Homes: Shiller Quick Summary News and Current Events 0 February 11th, 2013 01:30 PM
Mastery Robert Greene Hoorah55 Off-Topic 0 December 2nd, 2012 01:53 AM
ROBERT REICH TO NEW COLLEGE GRADS: 'You're F*cked' kbit News and Current Events 0 May 19th, 2012 11:02 AM
US Stocks Too Expensive? Bargains Abound in Europe Quick Summary News and Current Events 0 February 1st, 2012 02:20 PM
History Suggests Stocks Are 40% Overvalued, Says Professor Shiller kbit News and Current Events 3 June 16th, 2011 07:39 PM

All times are GMT -4. The time now is 06:36 AM.

Copyright © 2016 by All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts

Page generated 2016-10-25 in 0.06 seconds with 19 queries on phoenix via your IP