Bill Gross: CAPE Needs To Reflect New Neutral

PIMCO founder and CIO Bill Gross continues to examine how the New Neutral, the idea that the real fed funds rate is near zero instead of 1.75% as the Federal Reserve continues to assume, this time saying that it will change the way that investors use CAPE to decide if the market is overvalued.

“Even after accepting the historical validity and predictive capability of Robert Shiller’s CAPE (10-year cyclically adjusted P/E ratio), it may be necessary to make adjustments to it, if in fact real policy interest rates over the long term have settled into a lower New Neutral,” Bill Gross writes.

Bill Gross: CAPE may need to account for changing discount curves

One of the main criticisms of Shiller’s CAPE...