What is interesting about Schiller’s cal is that it isn’t crazy. The last two “bubbles” saw equity levels 100% higher than the intrinsic value index at their peak. A 50% rise from current levels would not be rare, or a signal of impending doom.
Shiller getting media attention for his positive commentary. He does qualify that he is speaking about market psychology and developing economic positives and not a valuation call, but one about investors turning more bullish from the current level of pessimism.
I have said the same periodically the past 8yrs. The potential rise is a level of excess using past periods of excess. It is what happens when investors perceive the investing climate as better than previously perceived. They assume the market has not priced in their expectations and become willing buyers and swap fixed income positions into equity driving rates higher as they drive equity prices higher.
The Value Investor Index has a Dec 2020 level of $2,722 based on inflation of 1.8%(current level). A 50%-60% premium at the end of 2020, only 3yrs away, would price the SP500 in the ~$,4,100-$4,400 range. Economic conditions are developing to be quite positive the next 3yrs. How investors respond has some predictability, but this is not perfect. Investors could repeat past turns to optimism, could not or could go over-the-top as we saw in 2000 and give us a 100% premium. Too hard to call.
What is clear is that the T-Bill/10yr Treasury Rate Spread is quite favorable at the moment and that when it narrows to 0.20% or lower we should see the market peak.
I can say with some level of confidence that market should be higher the next 3yrs. This is why I remain quite positive.
Nobel winner Robert Shiller: Stay in the market because it ‘could go up 50 percent from here’
- Nobel Prize-winning economist Robert Shiller believes investors should continue to own stocks, because the bull market may continue for years.
- Shiller helped develop the widely followed S&P/Case-Shiller Home Price Indices. He was awarded the Nobel Prize in Economic Sciences with Eugene Fama and Lars Peter Hansen in 2013.