Why Truman longed for a one-handed economist

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Why Truman longed for a one-handed economist

Postby Yipee-Ki-O » 02/20/14 at 18:20:15

"Fixing the Shiller CAPE: Accounting, Dividends, and the Permanently High Plateau"

http://philosophicaleconomics.wordpress ... 3/shiller/

Uh-oh, hocus. It looks like you could be waiting quite a long time for the BatSignal? to come clanging to notify you that it's once again safe to buy stocks. You see, you've made the mistake of imagining economics to be identical to one of the physical sciences complete with their immutable constants. Sorry, as you can see from this post to Philosophical Economics, the field of economics doesn't work that way. Ambiguities and philosophical differences are the order of the day.

Juicy Excerpts!

To get to fair value on Pro-Forma CAPE, we would need a garden-variety correction of 15%, down to around 1500 on the S&P. ? But to get to fair value on GAAP CAPE, we would need a plunge of 40%, down to around 1100 on the S&P. ?This difference has crucial implications for tactical investors. ?A bearishly-inclined investor who pulls out of the present market in the hope of seeing the S&P revert to its ?fair value? of 1500 is at least being realistic (whether you agree with the tactical call is obviously a different question). ?But a bearishly-inclined investor who pulls out of the present market on the expectation that the S&P will revert to its ?fair value? of 1100 is being ridiculous.

...

There is no external, divinely-imposed valuation level that the stock market has to take on. ?Rather, the stock market takes on whatever valuation level achieves the required equilibrium between those that want to get in it, and those that want to get out of it. ?At all times, every investor that wants to get in the market needs to connect with an investor that wants to get out of it.

...

There's many, many more but I'm packing for another trip so I'll just let you and my fellow HocoResearcher's peruse them at yours and their convenience. I think it's fair to say your world-view that a single simple metric is the holy grail of investing is built on a rather shaky foundation.

Oh and hocus? So far not a single vendor has objected to my paying them with my "cotton candy" returns on this impending trip nor on the one just completed. Very odd. Perhaps the airline just can't resist that sweet confectioner's product! :lol:
Work is the refuge of those who have nothing better to do, Oscar Wilde
Yipee-Ki-O
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