From their website, an explanation of their methodology and results:
US CAPE and q chart
The US Flow of Funds data (“Z1”) have just been published (17th September, 2009) for Q2 2009. We also have 99% of the EPS on the S&P 500 for Q2 2009. On the basis of these data, and allowing for the 16% rise in the stock market since 30th June, 2009, US non-financials on 17th September, with the S&P 500 @ 1069.45, were 40.6% overvalued (using q) and the total market including financials was 36.5% overvalued (using the cyclically adjusted PE “CAPE”).
From being around fair value at the end of March, the US stock market has become significantly overvalued again. In the case of q this is largely because of the rise in the market, aided to a small extent by falling asset values, largely of real estate, and rising liabilities.
In the case of CAPE the increase in the overvaluation of the market is also largely due to the change in share prices but, as current EPS, measured at constant prices, are around half those recorded 10 years ago, the cyclically adjusted EPS is also on a downward path, which is likely to continue for some time.
What is q you say? "q" is the ratio between the value of companies according to the stock market and their net worth measured at replacement cost.What is CAPE? CAPE is the cyclically adjusted PE ratio as formulated by Robert Shiller. Both of these measures (CAPE and q) have been statistically determined to be significantly correlated to LONG TERM returns.
But did you catch what Smithers & Co. was saying about long term returns going forward? "From being around fair value at the end of March...". That would be after a 29% rally off the March 9 lows to about the 810 level on the SP500. We now sit (November 3rd) at 1045.
Have people telling you the market is cheap? Not that it can't rally from here, but cheap it's NOT.
No comments:
Post a Comment