The CAPE has a lot of empirical evidence backing it. A high CAPE vs historical, e.g. > 25 signals less than 2% returns pa. for the next 15 years. That's a terrible return indeed and I'd rather invest in bonds! A CAPE of < 13x signals a probable 9 - 14% return for the next 15 years.
From the table below, the US, Australia, Indonesia, Malaysia, India are SELLS.
A lot of southern Europe, China, Russia are BUYS.
Amongst regional indices, the cheapest is Emerging Latin at 13.6x (I presume includes Italy and Spain), Europe at 13.8x, Emerging markets at 15x and Emerging Asia at 16.9x. None of the regional indices are below 13x so none are extremely cheap. North America with around 24.3x obviously looks like a SELL.
After over 5 years of money printing worldwide, the currency wars have not caused inflation in the west because the job markets have been slow to recover. It however caused real estate bubbles in Asia and Emerging Markets, triggering inflation between 2010 - 2013. Most Emerging economies had to tighten, which caused a slowdown of their economies from 2011 onwards. Today, even the emerging economies are starting to deflate. China just reported a 0.1% CPI. Many emerging economies have entered the currency wars and have room to cut rates.
The country that will probably lose the currency war is the country that experiences inflation first, whether from wage inflation or asset inflation. I see the US losing the currency war first as its job market appears to recover the fastest. However, it is likely to hike rate only in 2016, much to the disappointment of currency speculators. The UK is likely to be next.
It is a strange period because by the time the first rate hike appears, financial assets would already be in a bubble and certain businesses and households would have over levered. We could see an implosion again in 2017 even amid low interest rates and without yield curve inversion.
Always buy when assets are cheap and take profit when assets are expensive. We may not be able to time the market well. But I strongly believe in Professor Shiller's CAPE valuations, because he spotted the tech bubble between 1996 - 2000, the real estate bubble between 2006 - 2008 and now the S&P500 bubble from 2015 onwards.
If I were you I'd sell the US and buy Europe and China now.
From the table below, the US, Australia, Indonesia, Malaysia, India are SELLS.
A lot of southern Europe, China, Russia are BUYS.
Amongst regional indices, the cheapest is Emerging Latin at 13.6x (I presume includes Italy and Spain), Europe at 13.8x, Emerging markets at 15x and Emerging Asia at 16.9x. None of the regional indices are below 13x so none are extremely cheap. North America with around 24.3x obviously looks like a SELL.
After over 5 years of money printing worldwide, the currency wars have not caused inflation in the west because the job markets have been slow to recover. It however caused real estate bubbles in Asia and Emerging Markets, triggering inflation between 2010 - 2013. Most Emerging economies had to tighten, which caused a slowdown of their economies from 2011 onwards. Today, even the emerging economies are starting to deflate. China just reported a 0.1% CPI. Many emerging economies have entered the currency wars and have room to cut rates.
The country that will probably lose the currency war is the country that experiences inflation first, whether from wage inflation or asset inflation. I see the US losing the currency war first as its job market appears to recover the fastest. However, it is likely to hike rate only in 2016, much to the disappointment of currency speculators. The UK is likely to be next.
It is a strange period because by the time the first rate hike appears, financial assets would already be in a bubble and certain businesses and households would have over levered. We could see an implosion again in 2017 even amid low interest rates and without yield curve inversion.
Always buy when assets are cheap and take profit when assets are expensive. We may not be able to time the market well. But I strongly believe in Professor Shiller's CAPE valuations, because he spotted the tech bubble between 1996 - 2000, the real estate bubble between 2006 - 2008 and now the S&P500 bubble from 2015 onwards.
If I were you I'd sell the US and buy Europe and China now.
undamental Valuation Ratios in International Equity Markets as of 12/31/2014.
| Country | Weight | CAPE | PE | PC | PB | PS | DY | RS 26W | RS 52W | Score |
|---|---|---|---|---|---|---|---|---|---|---|
| China | 5.0% | 17.5 | 10.1 | 5.6 | 1.7 | 0.9 | 3.1% | 110% | 120% | 1 |
| Russia | 1.1% | 4.6 | 6.7 | 2.7 | 0.7 | 0.7 | 5.7% | 75% | 70% | 2 |
| Turkey | 0.4% | 11.9 | 12.7 | 9.0 | 1.8 | 1.1 | 1.7% | 105% | 115% | 3 |
| Singapore | 0.8% | 13.9 | 14.5 | 9.0 | 1.5 | 0.8 | 2.8% | 105% | 110% | 4 |
| Czech | 0.1% | 9.9 | 15.3 | 6.8 | 1.4 | 1.1 | 6.0% | 95% | 100% | 5 |
| Brazil | 1.5% | 8.8 | 13.2 | 4.6 | 1.3 | 1.1 | 4.8% | 90% | 90% | 6 |
| Hungary | 0.0% | 5.3 | 127.5 | 4.1 | 0.8 | 0.3 | 3.4% | 90% | 90% | 7 |
| Korea (South) | 1.5% | 12.2 | 13.5 | 4.7 | 1.0 | 0.5 | 1.2% | 100% | 100% | 8 |
| Italy | 1.1% | 8.5 | 29.6 | 3.6 | 1.1 | 0.5 | 3.1% | 95% | 95% | 9 |
| Austria | 0.2% | 6.5 | 80.2 | 4.9 | 0.9 | 0.5 | 3.5% | 95% | 85% | 10 |
| Taiwan | 1.2% | 20.0 | 14.2 | 6.9 | 2.2 | 1.0 | 2.9% | 105% | 115% | 11 |
| Israel | 0.2% | 15.2 | 17.8 | 10.2 | 1.9 | 1.5 | 2.5% | 110% | 115% | 12 |
| Spain | 1.4% | 10.7 | 22.3 | 6.1 | 1.6 | 1.0 | 4.6% | 100% | 100% | 13 |
| Poland | 0.3% | 10.0 | 18.2 | 7.9 | 1.4 | 0.7 | 4.2% | 95% | 95% | 14 |
| Hong Kong | 3.6% | 18.0 | 12.1 | 10.2 | 1.4 | 1.8 | 2.9% | 105% | 110% | 15 |
| Portugal | 0.1% | 6.3 | 20.6 | 6.0 | 1.4 | 0.6 | 4.3% | 85% | 75% | 16 |
| Netherlands | 1.5% | 15.9 | 21.0 | 10.7 | 1.8 | 0.8 | 3.0% | 105% | 110% | 17 |
| Norway | 0.5% | 11.1 | 10.5 | 7.6 | 1.4 | 1.0 | 4.9% | 85% | 85% | 18 |
| Japan | 7.9% | 25.9 | 16.6 | 8.1 | 1.4 | 0.7 | 1.7% | 105% | 110% | 19 |
| United Kingdom | 5.9% | 12.3 | 14.2 | 9.6 | 2.1 | 1.1 | 3.2% | 100% | 105% | 20 |
| New Zealand | 0.1% | 14.5 | 17.9 | 11.9 | 1.8 | 1.6 | 3.8% | 105% | 105% | 21 |
| Thailand | 0.5% | 16.9 | 16.0 | 9.0 | 2.4 | 1.0 | 3.1% | 100% | 110% | 22 |
| Germany | 3.4% | 16.8 | 17.9 | 6.7 | 1.8 | 0.8 | 2.6% | 105% | 105% | 23 |
| Greece | 0.1% | 2.4 | 5.6 | 0.7 | 0.4 | 0.7% | 75% | 70% | 24 | |
| France | 3.7% | 13.6 | 26.2 | 7.7 | 1.5 | 0.8 | 3.1% | 100% | 100% | 25 |
| Finland | 0.4% | 14.3 | 16.6 | 14.9 | 2.2 | 1.1 | 3.8% | 105% | 110% | 26 |
| Ireland | 0.1% | 10.4 | 23.5 | 12.0 | 2.5 | 1.5 | 1.0% | 110% | 105% | 27 |
| South Africa | 0.8% | 21.2 | 17.6 | 9.0 | 2.7 | 1.6 | 3.1% | 105% | 110% | 28 |
| United States | 40.7% | 27.8 | 20.3 | 11.1 | 2.8 | 1.7 | 1.8% | 110% | 115% | 29 |
| Belgium | 0.7% | 15.1 | 23.7 | 13.4 | 2.4 | 1.8 | 2.6% | 105% | 110% | 30 |
| Sweden | 1.3% | 20.1 | 15.5 | 9.7 | 2.3 | 1.6 | 3.2% | 105% | 105% | 31 |
| Australia | 2.4% | 16.0 | 17.2 | 13.2 | 2.1 | 1.4 | 4.3% | 100% | 100% | 32 |
| Canada | 3.5% | 19.2 | 20.6 | 10.2 | 2.0 | 1.5 | 2.8% | 100% | 105% | 33 |
| India | 2.5% | 20.3 | 19.1 | 12.9 | 2.9 | 1.6 | 1.5% | 105% | 115% | 34 |
| Malaysia | 0.7% | 18.8 | 15.6 | 10.8 | 2.0 | 2.1 | 3.2% | 95% | 100% | 35 |
| Indonesia | 0.5% | 26.6 | 17.7 | 14.1 | 3.8 | 2.6 | 2.1% | 105% | 115% | 36 |
| Switzerland | 2.9% | 23.1 | 20.6 | 15.0 | 2.8 | 2.0 | 2.7% | 105% | 105% | 37 |
| Mexico | 0.9% | 21.4 | 23.3 | 11.8 | 3.0 | 1.6 | 2.0% | 95% | 100% | 38 |
| Denmark | 0.6% | 30.6 | 18.1 | 2.9 | 2.3 | 1.7% | 100% | 105% | 39 | |
| EMERGING LATIN | 2.4% | 13.6 | 15.7 | 6.0 | 1.6 | 1.2 | 3.7% | 90% | 95% | |
| WORLD AC | 100.0% | 19.6 | 17.3 | 9.0 | 2.0 | 1.2 | 2.4% | 105% | 110% | |
| DEVELOPED MARKETS | 83.1% | 20.0 | 18.7 | 9.9 | 2.1 | 1.3 | 2.3% | 105% | 110% | |
| EUROPE | 23.8% | 13.8 | 18.7 | 8.5 | 1.8 | 0.9 | 3.1% | 100% | 105% | |
| NORDIC | 2.8% | 17.6 | 15.0 | 13.3 | 2.1 | 1.5 | 3.2% | 100% | 100% | |
| NORTH AMERICA | 44.1% | 24.3 | 20.3 | 11.1 | 2.7 | 1.7 | 1.9% | 110% | 115% | |
| EMERGING MARKETS | 16.9% | 15.0 | 12.7 | 6.3 | 1.6 | 1.0 | 2.9% | 100% | 105% | |
| PACIFIC | 14.9% | 20.6 | 15.2 | 9.2 | 1.5 | 0.9 | 2.5% | 105% | 105% | |
| EMERGING ASIA | 11.9% | 16.9 | 12.9 | 6.9 | 1.8 | 1.0 | 2.5% | 105% | 110% |
In the above table, empty cells represent negative or unavailable values. "CAPE" is the cyclically adjusted Shiller-PE, which is based on average inflation-adjusted earnings from the previous 10 years. PE (Price-Earnings-Ratio), PC (Price-Cashflow-Ratio), PS (Price-Sales-Ratio) and DY (Dividend-Yield) are based on trailing 12 month values. PB (Price-Book-Ratio) is based on the most recent company financal statements. RS(Relative-Strength)-Indicators divide the current market price by the average price of the previous 26/52 weeks.The presented valuation ratios are market-capitalization-weighted. "Weight" provides the actual country weight. The StarCapital-Score is derived from fundamental valuation and relative-strength indicators and measures the attractiveness of a country (blue=cheap/attractively valued, red=expensive/unattractively valued). The published information does not constitute investment advice or recommendations. Source: StarCapital.
