Looking Ahead

As the Fed’s asset purchase program ends, the price of oil plunges, global growth stalls, and the stock market recovers from its fall jitters, this seems like a good time to take a long view of where we are in the post-apocalypse recovery. The best guide to any such assessment remains Reinhart and Rogoff’s brilliant survey of financial crises, This Time Is Different, published in 2009. In their preface, they write: “If there is one common theme to the vast range of crises we consider in this book, it is that excessive debt accumulation, whether it be by governments, banks, […]

The US Equity Bull Market: Where are we today?

As the bull market in US equities charges into its sixth year, I’ve been chewing on what drives stock prices higher. “Duh,” you say, “more buyers than sellers.” Sure, but what kinds of tailwinds encourage buyers to load up?  And how hard are those winds blowing today? Going into a recession, the stock market tanks in anticipation of a decline in corporate earnings.  Then in time the recession ends, earnings rise, and the stock market recovers.  So recovery from a bear market is driver #1.  Today?  Well, following the smash in 2008, US companies did enjoy strong earnings recovery from […]

Is the Cyclically-Adjusted P/E Ratio Now Unreliable?

We all know the familiar mantra:  buy low, sell high.  But how can we recognize “low” and “high”? One stock market valuation measure receiving some recent attention is the cyclically-adjusted price-earnings ratio (CAPE), which is computed by dividing the current price of the S&P 500 index by the annualized average real earnings-per-share of the S&P 500 constituent companies over the past ten years.  (The CAPE was developed by Robert Shiller of Yale University and is regularly updated on his website.) As John Authers noted in a column in the Financial Times (8/17-18/2013), Merrill Lynch’s head of U.S. Equity Strategy recently […]