Yale economist and Nobel laureate Robert Shiller published a NYT piece today on stock market valuations. I have always taken Shiller's word on this subject very seriously; not too many stock pickers have Nobels on the mantel above their fireplace!
Shiller was instrumental in designing the CAPE (cyclically adjusted price-earnings) ratio, which is now near its historic highs. Today the CAPE ratio is above 25. It has been above 25 three times before: 1929, 1999, and 2007. In each case the market crashed within a year.
Does this mean we should all rush to dump stocks? Not necessarily. CAPE is not an indicator of market timing. And US stock prices could get higher before they go lower. But it looks like a good time to be exploring other assets, even if the returns are low. A safe 1-2% beats -25% every time.
Dow hits 20,000
3 months ago