Remember this guy?

He is Robert Shiller, Yale economist, author of the bestseller, Irrational Exuberance and co-winner of the 2013 Economics Nobel Prize (see blog 27).  Shiller has spent a big part of career studying episodes of insanity in the stock market, especially periods when stock prices went into orbit, reaching levels that were way above its long-term price-to-earnings (PE ratio).

Take a look at the following chart and you will see what he means.

This chart is downloaded from Shiller’s website just this week. The jagged line is the PE ratio of the S&P 500 index from Jan 1871 to Jan 2018. The S&P 500 is the barometer of the overall US stock market