Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
So on the subject of CAPE/PE10,
Rob says “It’s the price of stocks. And it’s insanely high.”
Shiller says “Well, I wouldn’t discard it.”
So Rob says “See? We totally agree.”
Obviously Shiller can’t say he would discard it. To do so would be to say he didn’t deserve his Nobel Prize. The test is where Shiller is putting his own money, and he just said he is heavily in stocks. A point you avoided in that huge comment.
I think your comment is a fair one, Anonymous.
I 100 percent say that P/E10 is the price of stocks and that it is insanely high.
And Shiller said that he wouldn’t discard it. That statement is not inconsistent with what I say. I wouldn’t discard it either. But the tone used by Shiller and the tone used by me are very different. I am saying that we should be permitting honest posting re the effect of an insanely high P/E10 value at every discussion board and blog on the internet because, in the event that Shiller’s Nobel-prize-winning research is legitimate, the continuation of the Ban on Honest Posting may cause the Second Great Depression. That’s not good for anybody.
What I most like about your comment is where you say: “Obviously Shiller can’t say he would discard it. To do so would be to say he didn’t deserve his Nobel prize.” Yes! That’s exactly right. Shiller is biased. I am biased. You are biased. Bogle is biased. We all are biased. That’s why we should permit honest posting. When we permit honest posting, the people reading the boards to learn about the subject of investing get to hear both sides and then to form their own opinions. They can’t do that when only the advocates of one side are permitted to post their honest views. When you prohibit honest posting for those advocating the minority position, you turn the entire board into a corrupt endeavor. No one can trust a thing that is said at a board where one point of view cannot be expressed. How do you know whether the stuff being said by people holding the other point of view is legitimate? There is no one to challenge them when they say dubious things.
I don’t think that the test is where Shiller is putting his money. Shiller has indicated in many comments that he believes that he is able to engage in short-term timing successfully. He has said that he believes that a crash is coming but that he also believes that there are economic indicators that he can look at that will tell him when to get out. I am with the Buy-and-Holders re that one. I think Shiller is fooling himself re that one. It sounds like he might be one of those darn humans! The fact that Shiller gets that one wrong (in my view!) does not discredit his research findings. The research findings have been checked many times and they have passed every test. I believe that Shiller’s Nobel-prize-winning research is legitimate research.
By the way, I did NOT say that Shiller and I totally agree. I don’t see how any fair-minded person could get that from my comment. I couldn’t have done any of my work if Shiller has not published his “revolutionary” (his word) research findings of 1981. Everything that I have done is rooted in a belief that valuations affect long-term returns. But I don’t believe that Shiller and I agree on every point and I certainly have never said that we do.
I don’t agree with my wife on every point. I don’t think that I agree with my dog on every freakin’ point. Sometimes it is raining and he doesn’t want to go for a walk and I have to persuade him. He usually goes along with some reluctance but I don’t get the sense that he entirely agrees with me. He doesn’t like the rain, you know? He really doesn’t. But my view is that he needs to take a pee sooner or later, rain or no rain. Whachagonnado?
I think it might be that the difference between Shiller and me is that he is an academic and I am a journalist. Academics are very cautious. I think he feels that, if he makes his point and doesn’t argue it very forcefully, events will over time prove him right or wrong. I think he believes that there is going to be a crash and that that will vindicate him and that he doesn’t need to convince anyone today.
Up to a point, I agree with that. I do think that there will be a crash and that it will vindicate both me and Shiller. But I feel more of a sense of urgency re bringing the intimidation tactics that the Buy-and-Holders have employed to keep discussions of this stuff bottled up to a full and complete stop. If we permitted honest posting at every board, there would still be lots of people who would follow Buy-and-Hold strategies. There are many people who would not be persuaded of what I say even if I and all others were permitted to post with full honesty. I see that as being all part of the wonderful game. That doesn’t concern me.
But it concerns me greatly that we don’t permit honest posting today. When we ban honest posting, we violate the core social norms of this country. When we ban honest posting, we open lots of people to civil lawsuits and even to criminal prosecutions after the crash arrives. Huh? How is that a good thing? That sort of thing is very much NOT all part of the wonderful game. I don’t favor that sort of thing.
As an academic, Shiller adopts an ivory tower perspective. The idea is :”The truth will reveal itself over time, regardless of anything that I say. So there is no need for me to speak up with any great force.”
As a journalist, I believe that telling people the true story regardless of how they elect to react to it is a matter of great importance. The idea is: “Get the word out and let people decide for themselves how to react once they are fully informed. But always get the word out. Do not let intimidation tactics dissuade you from playing this important role, the role you have been given in this society. Speak truth to power. Do not falter.”
We believe in essentially the same things. But of course we don’t agree on every tiny detail because no two people on this planet do. But we come at things from different perspectives. Shiller is an academic and so he tends to come at things from the perspective of an academic. I am a journalist and so I tend to come at things from the perspective of a journalist.
As a journalist, I see this as the biggest personal-finance-story in the history of the United States. I think we’ve got a tiger by the tale re this one. That’s my sincere take.
My best wishes to you and yours.