{"id":16054,"date":"2017-12-17T17:30:05","date_gmt":"2017-12-17T17:30:05","guid":{"rendered":"http:\/\/thepatientinvestor.com\/?p=16054"},"modified":"2017-12-19T04:08:32","modified_gmt":"2017-12-19T04:08:32","slug":"pemax-second-highest-peak-in-last-100-years","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2017\/12\/17\/pemax-second-highest-peak-in-last-100-years\/","title":{"rendered":"PEMAX second highest peak in 100 years"},"content":{"rendered":"

I published a chart of PEMAX for the last 30 years on Saturday<\/a>. PEMAX eliminates the distortion caused by cyclical earnings fluctuations, using the highest earnings to-date rather than current earnings. The idea being that cyclical declines in earnings reflect a fall in capacity utilization rather than a long-term drop in earnings potential.<\/p>\n

Since then I have obtained long-term data dating back to 1900 for the S&P 500 and its predecessors, from multpl.com<\/a>.<\/p>\n

PEMAX for November 2017 is 24.34, suggesting that stocks are over-valued.<\/p>\n

\"S&P<\/p>\n

Outside of the Dotcom bubble, at 32.88, the current value is higher than at any other time in the past century. PEMAX at 24.34 is higher than the peak of 20.19 prior to the 1929 Black Tuesday crash, and higher than the 19.8 peak before Black Monday in 1987.<\/p>\n

This does not mean that a crash is imminent but it does warn that investors are paying top-dollar for stocks. And at some point values are going to fall to the point that sanity is restored.<\/p>\n

Robert Shiller’s CAPE ratio<\/h2>\n

Here is Robert Shiller’s CAPE ratio for comparison. CAPE attempts to eliminate distortion from cyclical earnings fluctuations by comparing current index values to the 10-year average of inflation-adjusted earnings.<\/p>\n

\"Shiller<\/p>\n

While this works reasonably well most of the time, average earnings may be distorted by the severity of losses in the prior 10 years.<\/p>\n

\n

You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.\n<\/p>\n

\n~ Warren Buffett\n<\/p>\n<\/blockquote>\n","protected":false},"excerpt":{"rendered":"

I published a chart of PEMAX for the last 30 years on Saturday. PEMAX eliminates the distortion caused by cyclical earnings fluctuations, using the highest earnings to-date rather than current earnings. The idea being that cyclical declines in earnings reflect a fall in capacity utilization rather than a long-term drop in earnings potential. Since then … <\/p>\n

Continue reading “PEMAX second highest peak in 100 years”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[48,57],"tags":[567,3766,2979],"class_list":["post-16054","post","type-post","status-publish","format-standard","hentry","category-earnings-dividends","category-stock-markets","tag-cape","tag-pemax","tag-robert-shiller"],"yoast_head":"\nPEMAX second highest peak in 100 years - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"PEMAX second highest peak in 100 years - the patient investor\" \/>\n<meta property=\"og:description\" content=\"I published a chart of PEMAX for the last 30 years on Saturday. PEMAX eliminates the distortion caused by cyclical earnings fluctuations, using the highest earnings to-date rather than current earnings. The idea being that cyclical declines in earnings reflect a fall in capacity utilization rather than a long-term drop in earnings potential. 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According to multpl.com, prior to the Black Tuesday crash of 1929 CAPE had a reading of 30. The only peak with a higher reading is the Dotcom bubble at 44. Click here to view at multpl.com.\u2026","rel":"","context":"In "Quotes"","block_context":{"text":"Quotes","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/quotes\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":21187,"url":"https:\/\/thepatientinvestor.com\/index.php\/2020\/08\/07\/sp-500-pemax-at-24\/","url_meta":{"origin":16054,"position":1},"title":"S&P 500 PEmax at 24","author":"Colin Twiggs","date":"August 7, 2020","format":false,"excerpt":"The S&P 500 is way over-priced based on all three earnings multiples. 75% of companies in the S&P 500 have already reported earnings, so we have a good idea as to what overall earnings will be for the second quarter. Based on the latest index price of 3349.16, trailing PE\u2026","rel":"","context":"In "Stock Markets"","block_context":{"text":"Stock Markets","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/stock-markets\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":23779,"url":"https:\/\/thepatientinvestor.com\/index.php\/2021\/01\/21\/sp-500-bubble-risk\/","url_meta":{"origin":16054,"position":2},"title":"S&P 500 bubble risk","author":"Colin Twiggs","date":"January 21, 2021","format":false,"excerpt":"S&P 500 valuations are higher than the 1929 (Black Friday) Wall Street crash and the October 1987 (Black Monday) crash. The Dotcom bubble is the only time in the last 120 years that the ratio between Price and highest trailing earnings (PEmax) was higher. PEmax eliminates distortions in the price\/earnings\u2026","rel":"","context":"In "Stock Markets"","block_context":{"text":"Stock Markets","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/stock-markets\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":17741,"url":"https:\/\/thepatientinvestor.com\/index.php\/2019\/01\/15\/pemax-why-you-should-be-cautious-using-robert-shillers-cape\/","url_meta":{"origin":16054,"position":3},"title":"PEmax and why you should be wary of Robert Shiller’s CAPE","author":"Colin Twiggs","date":"January 15, 2019","format":false,"excerpt":"Robert Shiller's groundbreaking works, Irrational Exuberance and Animal Spirits, led to a Nobel prize in 2013 but we need to be careful of placing too much reliance on his CAPE as an indicator of stock market value. What is CAPE? CAPE is the cyclically adjusted price-to-earnings ratio, normally applied to\u2026","rel":"","context":"In "Earnings & Dividends"","block_context":{"text":"Earnings & Dividends","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/investing\/earnings-dividends\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":16299,"url":"https:\/\/thepatientinvestor.com\/index.php\/2018\/05\/23\/price-earnings-the-race-to-the-top\/","url_meta":{"origin":16054,"position":4},"title":"Price & Earnings: The Race to the Top","author":"Colin Twiggs","date":"May 23, 2018","format":false,"excerpt":"Now that 93% of S&P 500 stocks have reported first quarter earnings we can look at price-earnings valuation with a fair degree of confidence. My favorite is what I call PEMax, which compares Price to Maximum Annual Earnings for current and past years. This removes distortions caused by periods when\u2026","rel":"","context":"In "Earnings & Dividends"","block_context":{"text":"Earnings & Dividends","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/investing\/earnings-dividends\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":26535,"url":"https:\/\/thepatientinvestor.com\/index.php\/2021\/06\/26\/sp-500-and-the-fed-taper\/","url_meta":{"origin":16054,"position":5},"title":"S&P 500 and the Fed taper","author":"Colin Twiggs","date":"June 26, 2021","format":false,"excerpt":"S&P 500 earnings forecasts show a sizable jump in the March quarter (97.3% reported) followed by a weaker June quarter as the economy struggles with supply chain interruptions and labor shortages. Record operating margins of 13.0% estimated for the first quarter (March '21) are unlikely to be repeated. The average\u2026","rel":"","context":"In "GDP and Activity"","block_context":{"text":"GDP and Activity","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/gdp-and-activity\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/16054","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=16054"}],"version-history":[{"count":4,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/16054\/revisions"}],"predecessor-version":[{"id":16062,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/16054\/revisions\/16062"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=16054"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=16054"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=16054"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}