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#### Understanding the CAPE Debate: The History of 24 or More

At its recent level near 25, the cyclically adjusted price-to-earnings ratio (CAPE) of the U.S. stock market suggests that stocks are very richly priced or that there is something wrong with the CAPE. Debate about these two explanations intensifies each time the ratio ticks higher. This article offers objective data to help readers decide for themselves.

#### Recent Volatility ? Noise, not Signal

This spasm of volatility is a normal side effect when market participants adjust their positions to a new expectation for the future of monetary policy. Even though the policy adjustment being discussed at the Fed is minor ? i.e., a gradual tapering of quantitative easing (QE) ? the timing of the change was sooner than many investors expected, so trading volume jumped.

#### The Trend is Your Friend

John Hussman's recent market commentary, The Trend is Your Fickle Friend, highlighted the limitations of trend-following investment strategies that rely on moving-average crossover rules as a primary filter. But an extensive study conducted by our firm demonstrated that a simple moving-average crossover system outperforms buy-and-hold, while reducing drawdown risk and volatility.

#### Expect Headwinds for Stocks If Hoisington is Right about Bonds

Might today's historically low interest rates in the U.S. persist for years to come? The latest Quarterly Review and Outlook from Hoisington Investment Management forces readers to consider that possibility, refuting the reversion-to-the-mean mindset that causes many people to expect higher interest rates in the not-too-distant future. If the Hoisington model for the economy turns out to be right, the implications for the stock market are unfavorable.

#### Can American Become Greece?

Investors face four possible implications from the recent downgrade of America's long-term credit rating by Standard & Poor's: 1) Lower prices for financial assets; 2) Higher volatility in the asset markets; 3) Greater potential for trend-following investment strategies, and 4) Attractive opportunities in 'blue chip' stocks.

#### Subsuming the Efficient Market Hypothesis

A recent article highlighted important gaps in the efficient markets model (EMH) that limit its practical applications. It encouraged a search for a new theory of markets that builds upon EMH by rendering it as a special case within a broader, more general theory. Mordecai Kurz? Rational Belief Equilibrium is such a theory.

#### Implications of the Current Shiller P/E Ratio

In this guest contribution, Keith Goddard and Channing Smith expand on ideas presented in a previous article, Return Distributions and the Shiller P/E Ratio. They study the historical behavior of U.S. stocks during three-year holding periods that began at with valuations comparable to recent market conditions, as measured by the Shiller P/E ratio.

#### Return Distributions and the Shiller P/E Ratio

Keith Goddard expands on ideas developed by Joe Tomlinson in a series of recent articles on the topic of the Shiller P/E Ratio as a predictor of future returns in the stock market. Specifically, this article looks at the distribution of three-year returns in the stock market following different starting points for the Shiller P/E ratio to illustrate that the historical distribution of rolling three-year returns in the stock market is not random.

#### Theoretical Support for the Moving Average Crossover

In this guest contribution, Keith Goddard matches an appropriate descriptive theory about how asset markets work with recently published normative theory using Ted Wong's moving average crossover as an indicator for timing portfolio changes in active portfolio management strategies. He proposes that the theory of "Rational Belief Equilibrium" in asset markets, developed by Stanford professor, Mordecai Kurz, helps to explain why moving average crossovers have demonstrated predictive value in the stock market, and why they might continue to offer predictive value in the future.

12 results found.