Hello Jean-Francois,

I am so glad that you enjoyed the meditation presentation - thank you for coming out to see it!

I am also pleased to read that you like the calculation for the equity risk premium. Though independently created by me, I have since discovered that others calculate it very similarly. There is a CFA Institute Research Foundation monograph (look for it on cfapubs.org) that discussed multiple ways of calculating the figure. One of the major ways to calculate it is very similar to what I described above in the comment.

Also, last, I am always skeptical to hear the "this time it is different." One thing not mentioned in the comments here about the equity risk premium is that I think a case CAN be made that the earnings yield should be permanently lower (P/Es higher) because of the free flow of information facilitated by the internet. This means that markets are likely more efficient at pricing to the degree that the percentage of the market participation is done by active managers. Passive investors don't give a damn about price, they just blindly throw money in no matter the prices. This is a countervailing force to the efficiency. I am not quite sure where we are in that tug-of-war: efficiency vs. passive, but I think it likely that the earnings yield is probably lower right now and justified by better information flow.

That said, I do NOT think that in 2008 the situation was any different, and in my comparison above I was using the current ERP vs. one from 2008. So I think the comparison that it is high right now is a fair one.

Big smiles,

Jason