As always before we look at the CAPE let us first look at other key FTSE 100 metrics:
- The FTSE 100 Price is currently 6,338 which is a gain of 5.2% on the 01 January 2013 Price of 6,027 and 9.5% above the 01 February 2012 Price of 5,791.
- The FTSE 100 Dividend Yield is currently 3.47% which is down against the 01 January 2013 yield of 3.64%.
- The FTSE 100 Price to Earnings (P/E) Ratio is currently 12.96.
- The Price and the P/E Ratio allows us to calculate the FTSE 100 As Reported Earnings (which are the last reported year’s earnings and are made up of the sum of the latest two half years earnings) as 489. They are down 4.6% month on month and down 11.7% year on year. The Earnings Yield is therefore 7.7%.
So we find ourselves in an interesting situation. Nominal Earnings are falling and have been consistently since October 2011’s Earnings of 628 yet Prices are rising.
The first chart below provides a historic view of the Real (CPI adjusted) FTSE 100 Price and the Real FTSE 100 P/E. Look at the trend line of the Real Price. After you strip out the effects of inflation the perceived market value is doing not much more than oscillating above and below a flat line which we are now sitting on. The second chart provides a historic view of the Real Earnings along with a rolling Real 10 Year Earnings Average for the FTSE 100.
Click to enlarge
Click to enlarge