Viewpoints | June 29, 2017

I Do Indeed Believe the U.S. Market Will Revert Toward Its Old Means – Just Very Slowly

Executive Summary

After a few misquotes and misunderstandings by journalists on his pieces “Not With a Bang But a Whimper,” Jeremy has provided a response:

“They have said, or implied, that I believe high prices are here permanently and that I also believe regression to the mean has ended. This is, of course, inaccurate, as readers of my quarterly letters know. I have suggested that although mean reversion in margins and price earnings ratios is still probable, the speed of regression has slowed way down and become sticky. Because of this stickiness, I have suggested that regression of P/Es and profit share will take 20 years as opposed to the 7 years (the basis of GMO’s official 7-year forecast) that is more typical of the period 1900-1997 and that even then those measures will have only regressed back two-thirds of the way to the old normals.”

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