cape -- cyclically adjusted price/earnings

i saw an interesting quote from page 3 of the money pull-out section of the january 8, 2011 issue of the financial times. 'eleven reasons to worry - but two reasons to invest' by merryn somerset webb. i thought the identification of the 'only really reliable long-term indicator' was interesting. i wonder if the assumption that predicted returns can come from either price adjustments as well as earnings depends on a dividend-paying stock. 'as societe generale's albert edwards points out, on a cyclically adjusted price/earnings (cape) ratio, the us market remains seriously overvalued. so, unless this time really is different (and i'd bet a good deal that it is not), we can expect to revert to mean at some point. let's not forget, as edwards put it, that while the history of the last 130 years or so has been both remarkable and appalling -- "the deaths of empires, the birth of nations, periods of deregulation, periods of re-regulation, world wars, revolutions, plagues and huge technological and medical advances -- "none of these events mattered from the perspective of value" the long run average cape remained much the same. ... i'm not worried about valuation in the short term. the cape is -- so far -- just about the only really reliable long-term indicator of stock market returns we have. but it is rarely much use to anyone in the shorter term. som, while we need to watch it, we don't need to panic every time it flashes at us.'