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Mar 1, 2021
Rates, Bullshift, My Strategy And CAPE
As most readers will likely know, there’s an inverse correlation between interest rates and Price/Earnings (P/E) ratios. This is especially true for the Shiller Cyclically Adjusted Price Earnings (CAPE) ratio. This relationship is both intellectually intuitive and empirically obvious once you superimpose and examine the data. The simple reason revolves around the interplay between risk and return. When the risk-free rate is extremely high, as it was in the early 1980s, people will...