Shiller's CAPE ratio is a longer term measure of the valuation of the stock market. While being high does not necessarily mean a crash is likely, it was last this high in 2007, and only higher at the start of the Depression and the Dot com crash.
Shiller PE Ratio: Current Shiller PE Ratio: 26.96 -0.19 (-0.68%) 4:29 pm EST, Mon Dec 1
Shiller wrote an interesting piece in the New York Times in August, suggesting that people were perhaps grabbing for their life preservers on the Titanic. He seems not to be able to quite put his finger on whether assets are really over-valued, but clearly felt there is a high risk that they are, and yet people's behavior to move to 'safer' assets just continues to drive the values up higher.
More recent trends and news seem to indicate that there is plenty of weakness elsewhere in the world, and the US simply finds itself relatively more attractive. Generally markets such as the FTSE, CAC and Hand Seng have seen much more modest growth while the S&P has been on a tear especially over the last 2 years. Oil prices have weakened, and today's drop weighed on global markets, hammering the Russian ruble in particular, forcing the Bank of Russia to intervene again. In Europe, November saw manufacturing activity in each of its three largest economies decline for first time in 18 months. China too looks relatively weak despite a recent cut in interest rates.
Hence the dollar and US assets rise in value. But peeling back the global onion, it feels like the foundations are still very shaky and we're likely still a long way from robust and healthy ongoing growth. In this global economy, all boats rise, and fall, together.
The Mystery of Lofty Stock Market Elevations - NYTimes.com: Extrapolating from a theory of Robert E. Lucas Jr. of the University of Chicago, one might well expect lofty stock prices amid such worries: When there aren’t enough good investing opportunities, people wishing to save more for the future may succeed only in bidding up existing assets even if they think they’re overpriced. Call it the “life preserver on the Titanic” theory.
Morning MoneyBeat: The Downside of Goldilocks - MoneyBeat - WSJ: The problem for 2015 is that this story may have unexpected plot twists. The conventional wisdom is missing the point that this is less a story about U.S. growth and more about the broad global trends, and central bankers trying to keep teetering economies afloat. Witness China’s unexpected move on Friday to cut interest rates after months of a weakening economy, and ECB President Mario Draghi’s reiteration on Thursday of a promise to expand asset-purchase programs if inflation shows signs of staying too low for too long.
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