Cliff Asness of AQR on the Current Shiller PE Ratio

From Cliff Asness of AQR, discussing the Shiller PE, also known as CAPE. Interesting third quarter commentary from the fund on market valuation levels. A brief excerpt followed by the full document in scribd:

It’s been a long-time since we’ve discussed this, but since it’s actually the source of some current controversy,1 now seems
like a good time to re-examine the valuation of the entire U.S. stock market, and particularly the relevance and meaning of
the Shiller P/E, a measure we have favored in the past.
Recall that researchers have found that valuation measures have some power to forecast long-horizon (say 10- year) stock
market returns. Of course, there is not one unique valuation measure known to be perfect, and most possible choices
have their pros and cons. In particular, for many years, researchers and practitioners have made use of the price-toearnings
ratio. For every dollar you invest in the S&P 500, how many dollars of earnings do you get (not that an investor
actually receives all the earnings)? Now, while the “price” in price-to-earnings is well specified, there is generally no
agreement on what to use for earnings. One can use operating or total earnings. One can use forecasted or trailing
earnings. One can use last quarter, last year, or even longer to measure earnings. Many other adjustments and methods
are possible.