Financial Adviser Coumarianos: Shiller P-E Ratio Signals Bad Decade for Stocks

Tuesday, 18 Dec 2012 11:27 AM

By Dan Weil

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While some analysts say stocks are attractive by the standard of short-term price-earnings ratios, a longer-term measure spells doom for the equity market, says John Coumarianos, managing member of financial advisory firm Hamilton Research and Management.

That measure is the Shiller P-E ratio, which uses an average of earnings for the last 10 years. “A recent research paper by hedge fund manager Cliff Asness shows that the Shiller P-E is pretty good at predicting future 10-year returns of the stock market,” Coumarianos writes on MarketWatch.com.

The Shiller ratio has averaged about 16 for the last century, but it’s now in the low 20s, Coumarianos says. That means “you should expect meager returns over the next decade,” he maintains.

Editor's Note: The IRS’ Worst Nightmare — How to Pay Zero Taxes

“How meager? Well, you may keep up with inflation, but not much more, according to Asness’ historical data.”

Some European and emerging markets offer better value, Coumarianos says.

David Tepper, founder of hedge fund manager Appaloosa Management, is much more optimistic for U.S. stocks, at least for the short term.

They could fly high if the government is able to avoid the fiscal cliff, he tells CNBC.

“This market is a very good market. And once we can get over this hump, we could have Prince,” he said, referring to the Prince song “Party Like It’s 1999.” Stocks soared that year.

Editor's Note: The IRS’ Worst Nightmare — How to Pay Zero Taxes

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