Is This Time the Same or Different?
Yale economist Robert Shiller appeared on CNBC this past week with a warning that his key measure of market valuation is at levels that have preceded most of the major crashes of the last 100 years.
Shiller’s “cyclically-adjusted P/E” or CAPE ratio, now stands at 27.94, a level that has been exceeded only in the 1929 mania and the 2000 dot.com rally.
Being extra-cautious with his wording, Dr. Shiller said “It’s not a good time, but I’m not saying to panic”.
This commentary from Shiller tracks the level of the CAPE ratio that we provide in “The Very Big Picture” section of our Monthly Market Commentary.
The chart below shows graphically that the CAPE is in territory only seen twice in more than a century.
So, is this any kind of guarantee that history will repeat itself?
Of course not, but caution should be observed.
What we basically never know is when this will happen, if it does, indeed, happen. And there is where it gets complicated.
Pay attention. Don’t freak out, just pay attention. That’s what we’re doing.