World Stock Markets Ranked By CAPE Valuation - Mike Swanson (07/14/12)

Someone sent me an email with links to two very interesting articles by a fella named Mebane Faber who runs a blog using his name as its title. You might want to check it out at This is the first I've heard of him.

In one of his posts he includes this interesting chart:

What you are seeing is a rank of global stock markets by their . This is the valuation metric popularized by Robert Schilller. What it does is take a 10 year P/E ratio and adjust it for inflation.

Here's a look at the S&P 500 and its historically cyclically adjusted P/E (CAPE for short).

You can see that only a few times has the CAPE for the S&P 500 fallen below 10. Right now it's also above its historical average valuation so it isn't cheap. In fact the market is in something similar to the secular bear markets of the 1930's and early 1940's and late 60's to early 80's, all of which we marked first by violent bear markets then sideways markets that lasted for years. We in a cyclical bull market in this sideways secular bear market right now.

Secular bear market bottoms seem to come when the CAPE valuations get cheap. That can happen again this decade with a sideways market and high inflation.

However, other markets such as Greece, Italy, and Spain are at super low valuations right now. Germany is pretty cheap too.

Really some of these valuations are so low that its fantastic.

I don't think all of the bad news is out on them yet and still think it likely that we'll see Greece default on its debts before the year is over or in the first quarter of next year, but once the bad news reaches its final crescendo I plan on investing in Greek stocks and in other European markets.

These valuations simply happen only a few times in a century for a market and the key to successful long-term investing is to take advantage of such opportunities and turning points when they occur.

In another post on his blog Mebane Faber wrote the following:

"I was reading an article from one of the banks that was talking about how low Greece’s CAPE was (the article cited around 2). I wanted to examine what happens when a CAPE was really, really low. So, we looked at the database for all instances where CAPEs were below 5 at the end of the year. We only found nine total out of about 1000 total market years.

US in 1920

UK in 1974

Netherlands 1981

South Korea 1984,1985,1997

Thailand 2000

Ireland 2008

and…Greece in 2011

Can you imagine investing in any of these markets in those years? Me neither. In every instance the newsflow was horrendous and many of these countries were in total crisis.

Now what would happen if you invested in these markets, the literal worst of the most disgusting terrible markets/economies/political situations? Below are local country real returns (net of inflation):

On average:

1 Year: 35%

3 Year CAGR: 30%

5 Year CAGR: 20%

10 Year CAGR: 12%"

Interesting stuff. Dave Skarica and I have been talking a lot about the opportunities to invest in Greece. This is the only other person I've seen talk about it in a serious manner.

I've done a bunch of podcasts recently. You might want to check them out:

Tiny on This Morning's Market Gap Down and Bigger Trend - Mike Swanson (07/12/12)

Podcast: Victor Riesco Talks About How to Nagivate This Sideways Market - Mike Swanson (07/11/12)

Podcast: Jeff Pierce Talks About Bonds and His Recent Broad Market Buy Signal - Mike Swanson (07/10/12)

Gold Stocks Are Still Lagging The Broad Market For Now - Mike Swanson (07/06/12)

Podcast: David Frazier On Why QE Is Not Likely And What It Will Really Take to Turn Around the Economy - Mike Swanson (07/03/12)

Podcast: Chris Vermeulen of Discusses the Potential Bull Flag for Gold Stocks and Key Pivot Points for the S&P 500 - Mike Swanson (06/26/12)

Podcast: Dave Skarica on Europe, Greece, and Gold - Mike Swanson (06/21/12)


russia, at least their mining stocks should be looked at, i have owned shares in a large nickel etal mine though sold them as it was so volatile

NBG, NATIONAL BANK OF GREECE, ALSO HAS BRANCHES IN EASTERN EUROPE, at less than two bucks a share, perhaps buy some now, of course i am long and i don't claim to know if it'll survive

and acknowledge this stock is all over the place, so try to acquire
a few when it hits twenty cents, twenty-five cents

Will keep an eye on Russia.... If we get a dip like I think in the fall will be interesting if it starts to hold up and display positive relative strength.


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