The Indicator from Planet Money This indicator hasn’t flashed this red since the dot-com bubble
99 snips
Nov 6, 2025 Lizanne Saunders, Chief Investment Strategist at Charles Schwab, and John Campbell, Harvard Economics Professor and co-creator of the CAPE Ratio, explore the alarming spike in the Shiller PE Ratio, now at its highest since 1999. They break down how this ratio reflects investor sentiment and discuss its implications for long-term returns. The duo also draws intriguing parallels between today’s AI-driven market and the dot-com bubble, raising questions about whether we are in a similar investment frenzy.
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Personal Loss From The Dot‑Com Bust
- Darian Woods recounts losing his job after the dot-com crash when his company folded.
- He uses the experience to illustrate the real-world scars from high-valuation busts.
What The CAPE Measures
- The CAPE (cyclically adjusted P/E) uses inflation-adjusted average earnings over the past 10 years to smooth volatility.
- A high CAPE indicates expensive markets and a low CAPE indicates cheaper markets, but it predicts long-term returns not short-term moves.
High CAPE Signals Lower Long-Term Returns
- The current CAPE is near 40, close to late-1990s highs but below the 2000 peak of about 45.
- High CAPE values correlate with lower average 10-year returns, making it a long-range forecasting tool rather than a short-term crash signal.
