Valuations Are Not Driving Equity Prices

The study of history must include a comprehesive analysis that exceeds at least one economic and confidence cycle within two different financial centers. Conculsions based on anything shorter, such as historical 'valuations' within varying degrees of currency stability in the US, are not reliable.

Valuation are a moving target during periods of currency devaluation. A simply review of any of the world's hyperinflations illustrates this point. For further discussion equities prices and hyperinflation - Weimar Republic

Headline: History Bodes Ill for Stock Market

Commentary: Market's valuation currently well above average

Here's a sobering thought as earnings season begins in earnest:

There have been only four other occasions over the last century when equity valuations were as high as they are now, according to a variant of the price-earnings ratio that has a wide following in academic circles. Stocks on each of those four occasions would soon suffer big declines.

This modified P/E was made famous in the late 1990s by Yale University professor Robert Shiller, particularly in his book "Irrational Exuberance." In this modified P/E, the denominator is not current earnings per share but average inflation-adjusted earnings over the trailing 10 years. This modified ratio — sometimes called P/E10, or CAPE (for Cyclically Adjusted Price Earnings ratio) — has a markedly better forecasting record than the simple P/E.

Source: finance.yahoo.com