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Histogram To Go With: Interest Rates Make Stock Bubble Bigger Than 2000 And 1929

Justin Hohn inspired making a histogram to see the distribution of the residuals between the PEses measure of stock market valuation and the estimate of the PEses based on the 10 year T-Bond yield.

(click to enlarge)Click to enlarge

In making the histogram I decided to take the log differences between the PEses and the estimate. I believe this is a more consistent way to look at the residuals. It also means the current valuation labeled as being 58% above the red best fit line in the article is only 2.6 standard deviations above the red best fit line rather than more than 3 as I stated in the article.

The distribution is somewhat normal; 77% of the residuals are within one standard deviation.