US CAPE and q chart
US CAPE and q chart. |
With the publication of the Flow of Funds data up to 31st March, 2013 (on 6th June, 2013) we have updated our calculations for q and CAPE. Over the past year net worth has risen by 14.2%, with the most significant rise being in the value ascribed to real estate (+ 14.2%). Interest-bearing assets have risen by 5.2%, while interest-bearing liabilities have risen by 7.9%.
Both q and CAPE include data for the year ending 31st March, 2013. At that date the S&P 500 was at 1569 and US non-financials were overvalued by 58% according to q and quoted shares, including financials, were overvalued by 61% according to CAPE. (It should be noted that we use geometric rather than arithmetic means in our calculations.)
As at 6th June, 2013, with the S&P 500 at 1623, the overvaluation by the relevant measures was 63% for non-financials and 66% for quoted shares.
Although the overvaluation of the stock market is well short of the extremes reached at the year ends of 1929 and 1999, it has reached the other previous peaks of 1906, 1936 and 1968.
Data for our calculations of q are taken for 1900 to 1952 from Measures of Stock Market Value and Returns for the Non-financial Corporate Sector 1900 – 2002 by Stephen Wright, published in the Review of Income and Wealth (2004) and for 1952 to 2010 from the Flow of Funds Accounts of the United States (“Z1”) published by the Federal Reserve. Data for our calculations of CAPE are taken from the data published on Robert Shiller’s website, updated from data published by Standard & Poor’s and the BLS.
NB. The geometric mean of the cyclically adjusted PE, using 10 year data adjusted for changes in the CPI, was 15.7. The cyclically adjusted PE for the 10 years to March 2013 was 25.2 and the market was thus 61% overvalued (25.2 ÷ 15.7).
Those who wish to claim that the market is cheaper than this can do so by a combination of data mining (selecting data periods which are shorter than the time over which data are available) and by using arithmetic averages.
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