This is not to bash you, but every time there was a huge boom / bust people found reasons why it would not mean revert
Sure, let's go through your points
Wow so following your reasoning Europe is insanely cheap right now.
Cape of 15, AND 10 year interest rates in the red.
So if you're looking at it from the perspective of ABSOLUTE valuation. Certainly so. However, valuation is always about future expectations. What about demographic differences between the two regions? Or employment and spending levels? How about the rising US dollar and its effects on US earnings vs EU earnings? US earnings are suppressed because companies have to report in US $ while EU reports in lb or euro. Do you think technology/SAAS (heavily US) will be the driver of future economic growth or is it too fadish? These can all explain the valuation gap, but are any of them correct or precisely measurable?
Also do you somehow avoid buying Amazon in your index funds?
1) Construct your own index if you have enough capital for less than 5bps a year
2) If you can't avoid it, just know that only 1.5% of your index is highly valued according to Shiller PE, while the remaining 98.5% is just fine. My point with Amazon is to demonstrate the skew of averages when you have one weird outlier. If you think Shiller PE of 17 is reasonable, then the fact that 98.5% of SP500 is 19 Shiller PE should convince you that the market isn't that frothy
These low long terms interest rates obviously help push stock valuations higher, but
A- I'm not sure how this means it will not mean revert
B- how do people explain european and emerging market valuations (much more in line with history, even a bit below?)
US stocks are on the expensive side right now, it's a fact. Statistically, this SHOULD mean lower returns in the next 10-15 years are to be expected
But the stock market isn't a "statistically" driven vehicle. Looking at it as such is forgetting that what comprises the stock market is many, many businesses, with their own prospects and situations.
My main point has always been the Shiller PE isn't a good catch all metric, and I'm trying to demonstrate why this is the case for the present environment. Shiller PE doesn't consider alternatives, growth expectations, or interest rates. It's an ABSOLUTE valuation measure so isn't helpful 100% of the time. If you think interest rates will mean revert, then the market looks pretty expensive right now. If you think the US will shut off immigration, stop having children, and turn old, the market is also expensive right now. I think we'll have low interest rates for a while, and we'll age slower than other regions, which means I think the market isn't terribly expensive, maybe just a little bit on the higher than fair value side. Overall, returns going forward should still be in the 6-7% real range
Regarding emerging markets (we talked about Europe already above), besides the risks of culture (look at how many companies have had to write off their Argentinian investments in the past year) and accounting (Shiller PE is just a model, garbage in and garbage out, China won't ever have the same focus on reporting as the US does, it's just cultural, and the Chinese don't look at the market as investing, they look at it as merely a form of speculation), there's not the profit driven environment that we have in the US abroad. Look at any number of annual reports from European companies and you will see a section on sustainability and community, if you are an investor for the purposes of monetary gain, there's not a better environment than the US. That's both good news and a little depressing, but, is what it is