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What is your prediction for range for peak Shiller PE this time?


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It is hard to predict when the market will crash next. 

I wonder if it will be easier to predict the range for peak Shiller PE this time? 

I think we can probably all agree with almost 100% probability that we won't hit Shiller PE of 100.  We can probably also agree that probability is high that we won't hit Shiller PE of 50.  What about 40 and 45?  Above what number will folks start getting some more dry powder ready? 

Having a range in mind for max Shiller PE might help us be prepared. 

So far we have went above Shiller PE of 40 less than 2 years in 150 years, i.e. less than 1.3%.  Only the 2000 crash started at Shiller PE above 40.  All other crashes were at Shiller PE of 30 or below, except the 2020 flash crash.  I understand we are in different times with respect to interest rates - if you think these times are different because interest rates are low, it will be great if you could consider that over the past 150 years, we haven't had interest rates low for too long either (https://www.multpl.com/10-year-treasury-rate). 

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Source: https://www.multpl.com/shiller-pe

Edited by LearningMachine
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  • LearningMachine changed the title to What is your prediction for range for peak Shiller PE this time?

My issue is this doesn't adjust for the fact that corporate tax rates were 35% for 7 of the last 10 years and then 21% for 3 years (of which 2020 was one). If I normalize for 21% tax rate CAPE is closer to 31% which is still quite high but interest rates are going to be low till 2023. I am in 20% cash but will sell more if S&P crosses 4500 this year. 

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I don’t really see a big correction right away. As Jamie Dimon says, we are entering a Goldilocks period of multiple tailwinds for the economy. There is more risk in staying out than staying in here I think. 

As for interest rates, I don’t see them much higher than where they are. The perennial QE and low interest rates have taken OECD debt to GDP to such a level that higher interest rates are just not an option anymore (so long as the central banks can help it). I’m sure there will be market sneezes along the way but nothing crazy. We are swimming in a sea of massive liquidity and the pro cyclical forces continue to gain ground.

Edited by Ice77
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