Chicken Little, meet CAPE

Posted on Mar 05, 2017 by in Letters

The musical score of this market is furnished by chickens clucking.  Incessantly.  The more the sky doesn't fall the more insistent the clucking becomes.  The P/E ratio is too high.  Cluck cluck.  S&P P/E 26.75 at the moment, against an average of 15.64 (median 14.65, minimum 5.31, maximum 123.73).  A good time for a teachable moment.  The P/E is not a definitive indicator.  It is a debateable tool in the never ending search for the philosopher's stone -- which ever flees before us like a holy grail.  And there is no known tool which reliably identifies the top.  Long term trendline breaks  are very useful, and even short term breaks are indicative.

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