By Vern Gowdie – The Gowdie Letter (AUS)
‘I would highlight that equity-market valuations at this point generally are quite high. Not so high when you compare returns on equity to returns on safe assets like bonds, which are also very low, but there are potential dangers there.’
Federal Reserve Chairwoman Janet Yellen 6 May 2015 (our emphasis)
‘I believe it’s fair to say that they [share valuations] remain within normal ranges’.
Federal Reserve Chairwoman Janet Yellen 14 December 2016 (our emphasis)
Value is truly in the eye of the beholder.
19 months ago, Janet Yellen, thought the US share market valuation was quite high.
A mere 10 days ago, the Fed Chair now thinks the US market is within normal range.
I must be missing something here.
If I’m not mistaken the Shiller PE 10 (the green line) looks to be at a lower level in May 2015, then it is today
What used to happen, in an investing world that I once understood, was that a rising PE meant markets were going from being in normal range to quite high.
Obviously I’ve been out of the investing business for a few years, and missed the memo on the reversal in PE dynamics — a rising PE now means a market is going from quite high to normal.
Perhaps the Shiller PE 10 — which averages S&P earnings over the past decade to smooth out any high or low earnings anomalies — is an unfair reference.
Perhaps Fed Chairwoman Yellen based her comments on the PE multiple applied to the 12-month trailing (TTM) earnings (what the companies earnt in the previous 12-month period).