Loading ...And while the economist raised a stink last year as his vaunted Shiller P/E index surpassed its pre-crisis levels, the Yale professor is now using the tech boom (when companies’ near-$0 earnings caused the ratio to blow out to unprecedented levels) as his preferred reference point.
“The stock market could get a lot higher before it comes down. It’s highly priced, but it could get much more highly priced. It’s a risky market now,” Shiller told Bloomberg Television on Thursday.
While valuations may be stretched by historical standards, but by the standards of the tech boom, today’s valuations appear far less precarious.
Valuations may be among the most extreme in long-term history, but Shiller highlighted that they’re still well below the heady days of the technology boom at the turn of the century. The cyclically adjusted price-to-earnings ratio, which Shiller popularized to smooth out the effect of earnings over the longer run, currently sits at 33 times earnings. It reached as high as 44 in 2000, just before the dot-com crash.
However, a historical analysis of today’s valuations compared with equity valuations in 1929 paints a dimmer picture…
Readers should take all of the above with a grain of salt: last year, Shiller famously declared that he had trimmed his allocation to US equities and instead added to positions in foreign equities. Of course, anybody who has been keeping track of this year’s astonishing upside divergence, knows how well that worked out.