Tuesday, October 24, 2017

US stock market overdue a drastic correction

The stock market is overdue a drastic correction.

The current Cyclically Adjusted Price to Earnings Ratio (CAPE Ratio or Shiller PE Ratio) is at 30.76, whereas the historical average is 16.

The current level has only been exceeded twice since 1880:

a) on August 1929, right before the Great Depression

b) in the period between June 1997 and August 2001, during the Internet stock bubble.

The ratio is the highest it has been during the last 15 years.

This extraordinarily high ratio cannot be justified by a productivity shock or some new long-lasting technological innovation that would eventually boost earnings.

So it is most likely that we will face a correction and reversion to the mean (16).  This would imply a collapse of 93 % in the S&P 500 Index. 

I would strongly recommend a strategy of profit-taking, and investment diversification (in real estate, commodities, alternative assets, and related ETFs).  But certainly NOT in bitcoins or other similar crypto-currencies.

Also, perhaps, some inflation-protected assets (such as TIPS or gold ETFs), given that it is also likely that the period of low inflation is coming to an end.


Monday, October 16, 2017

Espíritus animales: como la psicología impacta a la economía

Reseña que escribí para la Revista Gestión en el 2009 sobre el libro "Espíritus Animales" de Akerlof y Shiller.

Lo vuelvo a difundir ahora en homenaje al Premio Nobel concedido a Richard Thaler.

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