"On that note, itâ€™s worth noting that the Shiller CAPE reached 30 last week, which places current valuations among the highest 3% of historical observations, on that particular measure. In reality, however, the situation is much more extreme. While some observers take solace in the fact that the CAPE reached a much higher level of 44 at the 2000 bubble peak, that historical comparison ignores the embedded margin. See, at the 2000 peak, the embedded margin of the CAPE was just 5.1%, compared with a historical norm of 5.4%. At present, because of depressed wages and high profit margins in recent years (which are now reversing given a 4.4% unemployment rate), the CAPE quietly embeds a profit margin of 7.2%. Put another way, investors are currently paying a very high multiple of a very high earnings number that quietly benefits from cyclically elevated profit margins. On the basis of normalized profit margins (an adjustment that improves historical reliability), the normalized CAPE would presently be 40. There is only a single week in history where the normalized CAPE was higher. That was the week of March 24, 2000, when the S&P 500 hit its final bubble peak, at a normalized CAPE of 41."
John Hussman, Weekly Commentary 7-24-2017