Set forth below is the text of a comment that I recently posted in response to another blog entry at this site:
Shiller on CAPE:
“John Campbell, who’s now a professor at Harvard, and I presented our findings first to the Federal Reserve Board in 1996, and we had a regression, showing how the P/E ratio predicts returns. And we had scatter diagrams, showing 10-year subsequent returns against the CAPE, what we call the cyclically adjusted price earnings ratio. And that had a pretty good fit. So I think the bottom line that we were giving – and maybe we didn’t stress or emphasize it enough – was that it’s continual. It’s not a timing mechanism, it doesn’t tell you – and I had the same mistake in my mind, to some extent — wait until it goes all the way down to a P/E of 7, or something.”
This one is also relevant. So it is a good thing that you bring it to our attention. But thus one is deceptive. And yo should point that out. Otherwise, you mislead people.
Shiller is saying that you can’t use P/E10 for short-term timing. That’s true. And, yes, everyone needs to be reminded of that frequently.
He is NOT saying that P/E10 should not be used for long-term timing. His life’s work shows that long-term timing ALWAYS works and ALWAYS must be employed by every investor hoping to have a realistic chance of long-term investing success.
There is now 33 years of peer-reviewed research showing that long-term timing is required. Anyone who is familiar with the peer-reviewed research and says otherwise is engaged in an act of financial fraud. There is no excuse for this. Millions of people are today unemployed because of this massive act of financial fraud. Millions are on their way to suffering failed retirements. I will not participate in this massive act of financial fraud in any way, shape or form.
I will do what I can to get the prison sentences of those who HAVE participated in this massive act of financial fraud reduced a bit. But I will never add my name to their “cause.” I love my country. I will fight to protect her from the sorts of individuals who have used their life energies to confuse millions of middle-class investors re the critical distinction between short-term timing (which never works, according to the peer-reviewed research) and long-term timing (which always works and which is always 100 percent required, according to the peer-reviewed research).
And, yes, my hero Robert Shiller is engaging in financial fraud here by failing to make this critical distinction. He is putting millions of retirements in jeopardy by confusing people on this point (and his words ARE confusing to those who have not studied these matters in great depth).
Shiller should be ashamed of himself for playing a part in this very, very, very sick and very, very, very dangerous and very, very, very irresponsible word game.
I cannot say whether he will be sent to prison or not for this act of financial fraud. That’s for the people of the United States to say. I can say that I will never myself participate in these sick and twisted word games. I will tell people about the many wonderful things that Shiller has done for us. I will tell people that he has advanced our knowledge of how stock investing works to a degree that no one else has ever achieved. I will also say that he was too afraid of what the Buy-and-Hold Mafia would do to him if he told the full truth here to state the obvious truth plainly and clearly and boldly and without apology. Shiller hurts us all when he lowers himself to the sort of tactics that you Goons have been employing on a daily basis for over 12 years now.
Again — That’s my sincere take re this terribly important matter. No felonies for this boy! I would be grateful if you would try to find somebody else.
No can do.
I can’t go for that.