Tuesday, August 30, 2011


The Yale Professor continues to discuss his bearish outlook for housing.  He explains why equities still appear expensive in the long term, why housing is likely to remain under pressure, why the general economy is likely to suffer a continuing malaise and why TIPS are his favorite investment currently.  This doesn't seem like a set of investment choices that have a positive bent despite the Fed's best efforts.  Could it really be as simple as the "loss of our American spirit" that explains depressed economic activity?

Despite the summary above and his bearish commentary, Shiller does make the case that one should be buying into the weakness in the markets and that one should be careful.  Interestingly he says that equities are overvalued, but not by alot in historical terms.  I make my own graphs using his data from the site http://www.irrationalexuberance.com/.  The correlation of long term P/E's to equity performance is remarkable.  It is tough to discern if stock prices lead to long term P/E declines or the other way around here, but the linkage is quite obvious.  Did I mention that we are in a recession? 


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