I think he may believe it’s good news that the S&P 500 forward valuation (what we believe we might make next year, having nothing necessarily to do with current earnings or actual sales) has returned, approximately, to the level of 1998.*
The problem, as I noted more than two years ago, is that, even ignoring that the numbers are more WAG than analysis, it’s still well above the historic levels that promise good returns.
So this, again, seems a good time to reproduce a graphic borrowed Burton G. Malkiel (it was on page 257 of a previous edition):
UPDATE: I wasn’t clear enough in my initial post, so I’m pulling vtcodger from comments:
Mankiw has a chart there. The label says it is S&P500 PE Ratio. The numbers it shows are in the high 20s — which is consistent with my gut feeling that the stock market has been substantially overvalued for the past 15 years. Over the very long term PE ratios for healthy markets have typically been below 15.
Now, it’s possible that something has changed since 1993 to make higher ratios more attractive. But I wouldn’t bet that way, though Brad DeLong, for one, appears to do so (though his argument is one of Relative, not intrinsic, Value).
*That is, two years after Saint Alan mumbled something about “irrational exuberance” and turned Robert Shiller into a popular author.