I had a request for explanation of the Shiller stuff and 100-year dow theory. I have gone through this before but here is an update.
There are two attachments:
100YearMarketTheory-2011.pdf
and this 111-year chart which starts in 1900 and stops in 2011.
I have used a predecessor of the chart before. The quick summary of the pdf file which discusses the chart and uses finer grained charts also is:
(1) markets become overly expensive (Bubble) from time to time (e.g., 1929, 1966, 2000) as measured by the Cyclically Adjusted S&P500 P/E (CAPE > 22, lower plot). That data was prepared by Professor Shiller (Yale Economics). He shares updated CAP/E data in a spreadsheet at this URL:
[URL="http://www.econ.yale.edu/~shiller/data.htm[/URL]. The the data in this source goes back to 1871...
(2) When the bubble market occurs the market eventually goes into a long-term (secular) sideways or down period for one to two decades. That period will include multiple cyclical bull and bear markets but make no overall progress. It essentially stays between upper and lower secular price boundaries (porosity allowed). We are near an upper boundary now.
(3) When the market becomes very cheap again (CAPE <10) by a combination of earnings growth and price erosion the market can eventually mount a new secular bull market that can last for a decade or more. Current CAPE is still hovering near bubble territory (21). I have a suspicion that the reason it takes so long to correct an expensive market is that the government won't let the markets correct but try to reflate what ever bubble is popping at the time.
(4) Current period from 2000 seems to be tracking history and the question on the table this morning because of the unprecedented QE enviornment is "Will this time be different". This chart illustrates the S&P500 during the current secular period as it approache the upper bound: 
Mike Scott
Cloverdale, CA
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