Saturday, March 16, 2013

American Stocks Slightly Overvalued

… according to the Robert Shiller’s Price/Earnings Index, the CAPE (Cyclically adjusted price earnings ratio). Shiller is the Yale economist whose  “Case-Shiller home price index” reported the largest price drop in its history by the end of 2008, reflecting the bursting of the housing bubble. Shiller had previously -- and correctly -- warned of the coming financial crisis in his book Irrational Exuberance published in 2000.

Have a look at the history of the CAPE since 1880, here.

He comments, however, that he  has not “an alarmist view about this”. “The market is high but it’s not horrible” he says. “Whether we have a bubble, no bubble or the forming of a bubble”, he adds, it's “quite a risky environment right now” and it could be any one of those. “It has been a bit bubbly, but I kind of give them all equal probability,” warning of “big movements one way or the other.”

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