Mebane Faber's paper entitled "Global Value: Building Trading Models with the 10 Year CAPE" has been published on SSRN. This paper is a very will written overview of one of the major tenets of my investment philosophy - that market's mean revert over longer term time periods.
In the paper, Faber breaks out 10 year return periods into different percentiles based on their starting CAPE 10. CAPE10, popularized by Yale Professor Robert Shiller of Irrational Exuberance fame, is an average of the past 10 Years earnings divided by the current equity market index level. Faber shows that there is a clear and powerful relationship between current valuations and average returns over the next 10 years in US and International Equity Markets.
Faber shows that buying cheaper markets and selling richer markets leads to much better risk adjusted returns.
Periods of strong Equity Market performance lead to richer valuations and then are followed by a period of poor performance which leads to cheaper valuations. Additionally, the current CAPE10 has been used by many market participants (including your's truly) to predict the future inflation adjusted returns of the Equity Market.
From a planning perspective, the ability to predict the range of future Equity Market returns is invaluable when putting together an asset allocation to meet future spending needs.