User 143167

The 'Right' Way To Value the Stock Market

1. You can not use a real rate of "r". It should be 10y treasury yield.
2. You ignore the "risk premium", which you conveniently believe is zero in your model. Remember, equity is even junor to junk bonds.
3. You can not use a 10 year moving average earnings which is way too slow to reflect a trend in earning growth.
4. In a globalized world, the stock prices should be free of arbitrage, which means a company listed in two countries should have a stock prices adjusted for exchange rates. So the cheap US money does not mean that you should buy US stocks at a higher PE, but rather buy some cheaper valuation stocks overseas. (Look at the Yen and Japanese stocks).