Comments (4)

  1. Warren says:

    This is a fascinating essay. As a life long member of “the last one to catch on club,” I have to ask if there is any relation between the sincerity of the post and the date “True Grit” posted it?

  2. G. Mitchell says:

    I missed the obvious test of this theory. What would an investor get if buy/sell were timed by FOMC meetings? Anybody have a fund that is cash-only except for 8 days/year?

  3. Kirk Clements says:

    So this would apply to Tobin’s Q and total market cap to gdp and market cap/revenues and all of the rest of the long term valuation methods that predict future returns over the coming decade with an over 85% correlation
    – sorry, not buying it
    – it seems to be a decent explanation of why the gullible remain willing to speculate at outrageously extreme valuations

  4. D says:

    It’s a clever and illuminating idea, this “monetary policy-adjusted CAPE,” but it’s unnecessary. An even better measure of stock valuation is a modification of Warren Buffet’s nonfinancial market cap/GDP ratio, used by John Hussman and others. If you look at Hussman’s weekly commentary, you’ll see he’s been using it with excellent accuracy to predict *subsequent* 10-year returns on the S&P 500. There’s no need to adjust anything:

    The larger myth that Hussman takes down is that interest rates somehow “justify” the absurd valuations in stocks. He shows that, even if you grant this, it doesn’t change the reality of low-to-negative returns on stocks in the next 10 years, if current valuations hold.

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