Important chart to watch.
This graph shows forward (implied) market return based on Shiller PE (CAPE).
Green line - expected return; blue line - actual realised returns.
This indicator is forward-looking by 8 years. To find out what was expected return 8 years ago we need to look at green line value in 2018. It was 3%. Actual realised return is 13% (right outer value of blue graph). This is a huge divergence that should correct itself sooner or later. Likewise, current expected return within the next 8 years is 1.8% (right outer value of the green line).
Actual realsied return will of course differ, but even under optimistic scenario assuming that Shille PE will remain 150% above the mean, stocks will return 6.8% within next 8 years.
Red line is interest rate. At it’s long-term high. This can only mean one thing: the market, through the long end of the interest rates curve, is essentially saying one thing. It's demanding a higher risk premium to finance this entire system.
Why I am writing about this today? For one reason. I want you to be informed. Not to scare, but to be alert. Overweighting equities is not a good idea at the moment. I will be disposing more shares and allocate proceeds to $TLT (iShares 20+ Year Treasury Bond ETF ). This run is not sustainable, I can feel it in the air. Some of you probably feel the same. Let’s be prepared.... Show More
Not investment advice. The author may have financial interests in the mentioned instruments.
Hey, will be great to catch up with you in person at the pro investors meet in Cyprus this November if you’re going. ... Show More
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Fri Aug 14 2026 03:21:48 GMT+0000 (Coordinated Universal Time)
