globeandmail.com : Shiller sees U.S. rally cutting out
Stock markets are still expensive, and investors could be in for an unpleasant surprise once corporate profits begin to weaken, says the Yale University economist who predicted the crash of 2000-2002.
Robert Shiller, whose 2000 book Irrational Exuberance became a bestseller for its gloomy but accurate forecast, said the current equity market rally is reminiscent of the mid-1930s rebound that followed Wall Street’s great crash of 1929. The Dow Jones industrial average tripled over four years between 1933 and 1936 — only to plunge once again in the runup to the Second World War.
Mr. Shiller said the Standard & Poor’s 500-stock index is still valued at about 27 times earnings — far below the bubble-era peak of 46 but still well above the long-term average of about 15. Those numbers are based not on last year’s earnings but on a 10-year average of profits.
“I think we could have a number of disappointing years,” the economist said in an interview yesterday with The Globe and Mail. “We see earnings growing rapidly, but I feel skeptical about [the sustainability of] that.”
Via Calculated Risk. See here for more discussion….
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