Assurance That Stock Prices Will Go Back Up Again Don’t Count for Much After a Crash
I am worried about what will happen in the days following the next price crash. Today’s CAPE value is 36. The mean CAPE value is 16. So a drop to fair value price levels would mean a price drop of more than 50 percent. At the end of earlier bull/bear cycles, the CAPE fell to 8. A drop to 8 would translate into a price drop of more than 75 percent. Many trillions of dollars of spending power would disappear from the economy. Hundreds of thousands of businesses would go under. Millions of workers would lose their jobs. Political frictions would be exacerbated. Q1 2021 hedge fund letters, confere...