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Bloomberg interview with Jeremy Grantham yesterday:He's still crying wolf.https://www.youtube.com/watch?v=JlEGU2ypr1Q Another minor note---He suggests that he thinks the on-trend normal level of the S&P 500 would be about 2500 today.On the notion that the smoothed real earnings yield is the best metric for the broad market,and using my own set of figures and smoothing method (a bit smoother than Shiller's E10),that suggests that he expects the current normal valuation level to equal the average multiple observed since about January 1983.Though I do buy his line of reasoning, I'm a bit dubious of that particular figure.Personally, I think the modern economy really is "different this time".Not that different, but different enough not to expect the normal of 50 years ago to be fully relevant.For one thing, historically the great majority of earnings were constrained by access to capital,but that is no longer a good characterization of the global economy.This changes the broad profile of the cost of capital: slightly lower demand for capital would general mean slightly lower yields on all kinds of securities.Lacking any better idea, I expect future "normal" to be something like a move back to the average since a start date somewhere in the 1990s.That's about the most optimistic/bullish view, anyway, so the bear market implications are perhaps the mildest that remain rational.Using the average trend earnings yield observed since 1990 would suggest "normal" around 2975 for the S&P 500.Using the average trend earnings yield observed since 1995 would suggest "normal" around 3194.Using the average trend earnings yield observed since 2000 would suggest "normal" around 3102.So, rock and roll, I think maybe his 2500 is a bit dour and 3000 might be a more reasonable expectation of normality these days.He expects a drop of about -42%, I expect a drop more like -31%. From these heights it doesn't seem like such a big difference.But of course, my relative bullishness--only a 30% drop!--is not that much comfort.That's the figure I kind of expect as a future average.If that were so, presumably stocks will be cheaper than that "normal" level about half the time, sometimes quite a bit.Jim
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