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This important question was raised over the weekend by John Authers at the Financial Times. It is a question I have wondered often during the rally of the past then months. Authers writes:

the Shiller data still suggest that stocks needed to get much cheaper than they did at last March’s low before they could start a true renewed bull market. His cyclically adjusted p/e fell to 5.8 in 1932, and 6.6 in 1982. Last year, it started to rebound at 13.3. Surely this is not the compelling cheapness that is needed for a new bull market?

I am inclined to think not. And if this is, indeed, the case there are two paths to resolve the persistent overvaluation: first, “we now either take another dive to new lows,” suggests Authers or second, we simply have to, “put up with many more years of lousy returns by stocks.”

I have no idea which scenario will play out but I would heartily welcome the former as another rare opportunity.


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