Are markets expensive and about to crash

Chenner

I read daily that markets are over-valued and heading for a crash. :eek: This view seems to be based mainly on current v historical P/E and P/E10 'CAPE' ratios.

But are historical 'normal' stock market valuations based on times of higher interest rates and higher yields on other asset classes?

The risk and volatility is higher for equities but with all asset classes today being regarded as expensive and no alternative sources of comparable yield I wonder if the bull markets have some way to run yet despite all the doom merchants.

Is there any historical precedent for what level of P/E or PE10 was sustainable for equities at similarly low interest rates and bond yields? Or it the current environment a first?

I'd be interested to hear other views.

Voyager2002

The crisis of capitalism is imminent, and world revolution is just around the corner. It doesn't matter whether you keep your money in shares or as cash in the bank: either way, it is about to lose its value.

I suggest you buy a piece of land somewhere in the Highlands of Scotland and learn how to grow your own food.

jimjames

No.

Or yes.

Maybe.

Markets go up and down. No one knows when they will rise or fall. BTW which markets are you talking about? Not all are at record levels like the USA

ColdIron

Don't forget guns 'n butter

Glen_Clark

Voyager2002 wrote: »

I suggest you buy a piece of land somewhere in the Highlands of Scotland and learn how to grow your own food.

I don't knows about the Highlands but down here in Devon the price of agricultural land has increased about tenfold in the last 8 years. How high does land prices have to go to get into bubble territory?

Intrepid2

Just make sure you have the best fund managers if you have collectives. The best ones will do a better job than you or I and they will know what investments are cheap and which ones are relatively expensive. The PE of the FTSE 100 ran at about 19 times earnings in the late 80's and it only just over 15 at the moment. If you don't use "best of breed" fund managers then good luck. We all know that most of the media knows nothing about the markets and they just make guesses that prove to be correct from time to time by sheer luck. But most of the time they get it wrong.

Linton

I dont know which way the markets will go in the short term and neither does anyone else. Fortunately for a long term investor these intermediate fluctuations dont matter beyond providing an opportunity for a profitable rebalance.

Chickereeeee

Which market?

gadgetmind

Intrepid2 wrote: »

Just make sure you have the best fund managers if you have collectives. The best ones will do a better job than you or I and they will know what investments are cheap and which ones are relatively expensive.

Sorry, but we have a large body of historical evidence that active fund managers add little value and only a tiny minority manage to beat their benchmark over long periods of time.

Predicting which managers this will be in advance is close to impossible.

Using a middleman to choose these managers (adding an extra layer of costs) will given even worse results.

I can recommend a few books and web sites you can read, if you like, but something tells me that you're unlikely to change your mind.

talexuser

Well the US hedge funds are leveraged with borrowed money to put into shares to a level never seen in history,
http://www.telegraph.co.uk/finance/markets/11066137/Spectre-of-1929-crash-looms-over-FTSE-100-as-traders-take-on-record-debts.html
so yes, a correction will happen.
The only question is when and how much. 10-20% we can recover without that much pain, the problem is if it becomes a major 40 or 50% crash.

joe_mcclaine

Intrepid2 wrote: »

We all know that most of the media knows nothing about the markets and they just make guesses that prove to be correct from time to time by sheer luck.

From what I can gather it's not just the media.

Most fund managers couldn't find their own ar5es with both hands and a map.