P/E Ratios, Italian Bonds and Forecasts

italian bonds

Have you seen the latest economic data?

It’s staggering.

No not the actual numbers but just how much of it there is.

Let me ask, did better, faster and more economic data help you in the 2000 dot com fall or the 2008 Global Financial Crises? Or really ever? And yet it feels like blogs, newsletters, money shows and big-box advisers can’t stop flaunting their latest data.   

They often talk about how their research departments are able to gather better and faster data. But what were their research departments doing in 2000 or 2008? How they’d miss both of the market crashes?

Investors have fallen in love with interesting data that serves no purpose

‘Interesting’ and ‘useful’ are not the same.  ‘Interesting’ often sells much better than ‘useful.’ Isn’t that interesting?

Eighty percent of the people reading investment newsletters are heading for a big fall because they believe looking at economic data (and stock picks) will save them. It won’t! And it didn’t.

When the stock market falls, it’s taking all stocks with it. Even the next Facebook of China.

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P/E Ratios Don’t Really Matter Anymore

Below is a price chart of the Shiller P/E ratio.


This chart might be interesting but will it help you avoid the next stock market fall of 50%? Will it help you side step bonds as they continue to underperform stocks, commodities and real estate?

Will it tell you when the market is about to throw up and turn south? In short, no.

There are only two times the US stock market has seen a Shiller P/E ratio this high before, September 1929 and July 1997.  That means the stock market could go higher two to 30 more months, right?


The stock market will do whatever the hell it wants to do. Too harsh? Are you thinking of a kinder more gentle stock market?

You see, the stock market doesn’t care about economic data. Only newsletters and big-box advisers do.

Is Italy About To Take Down The World?

And then there’s that damn Italian 2-year bond spiking higher that was dragged all over social media and the newsletter world for days on end.

I get it. Scary data sells.

But does it help you know when to be in or out of stocks…? Or bonds? Or commodities? Or even Real Estate?

It doesn’t.

The Italian two-year yield chart was the cat video dejour of the investment newsletter world. Below you can see the ‘interesting’ but useless chart of it.  

italian 2 year bond

Seriously, is anyone shocked that Italy does not have their sh*t together. Didn’t they almost die like ten times in the past ten years? They did. And each time the ECB bailed them out. And isn’t the ECB the guardian of large European banks?

So what’s the likelihood of the ECB continuing to bail out the largest banks in Europe? 100%? 99%? 98%?

And then there’s forecasts.

Forecasts are Investors catnip

And this makes complete sense. Humans want to feel certain about their future. So they want to know what is going to happen.

Forecasts sell.

Below is GMO’s forecast for the next seven years.

Basically, it looks like the world is going to end. [Almost] everything is going to return below zero, except for some cash and some Emerging Market assets. Please note all of the numbers below are net inflation.

GMO 7 year forecast

But what are we supposed to do with this data? Go to cash now? Buy Emerging Markets now? Emerging Markets have been underperforming the S&P500 for the past two months.

Information like this is designed for people sitting in the audience looking up at the stage. Who’s in the audience, almost everyone. Including investment advisers, investment newsletters, the media and all of their consumers.

When investors have the audience point of view, they enter into a smartness contest with the rest of the audience members… all five hundred million of them.

So even if an audience member is smart or really smart, they won’t be smarter than the entire audience.

Do you want to win the investment game?

Then you have to get out of the audience and move to the side of the stage. It’s from this point of view when the investor can finally start to know when they should be in or out of the stock market, bond market, commodity market and real estate market.

Your perspective is everything. And it can’t happen while sitting in the audience.

Keep your eyes open for an email I will be sending out very soon. It’s to invite you to my newest training that shows you how to get out of the audience and to the side of the stage.

In Your Corner,

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RC Peck, CFP




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