No, the defence is very much simpler. When the market is unusual high they predict low forward returns, and then you always then see low forward returns, though the time frame for that to happen is a bit uncertain. When they predict high returns you always see high returns, though the time for that to happen is a bit uncertain.

1. You are making GMO forecasts almost impossible to falsify!

So when 7 year time frame fails, we're simply supposed to wait another 7, 14, 21,.... 70 years until reality eventually cooperates or a severe financial/economic/pandemic intervenes for a few days the market valuation reaches your "fair value" for a few nano seconds and you declare victory?

A 7 year forecast with an unlimited extension clause. Brilliant. Even Trump press secretary would be impressed.

2. Accounting knowledge is not the same as forecasting

You are assuming away all the important things.

What will future earnings be? What valuation will investors assign them? And why should the appropriate valuation resemble a historical average?

3. Your dismissal of structural change is not something your idol (GMO) agrees with

Grantham acknowledged structual change as one of the possible reasons why their forecasts have failed in a 2017 or 2018 letter (I know it a couple of years before Covid but not sure of exact date). Specifically mentioned industry concentration.

You might want to review your own posts around 2010 where you were talking about per share real EPS growth for total stock market being in the 0.6% annual rate (I read that paper as well, Arnott I think). It was 10X that rate for over a decade and half from what you thought were "elevated profit margins".

4. Kalecki–Levy equation does not magically establish what stock returns must be

An accounting identity is not a forecasting model.

The real irony is that you dismiss structural change as denial while treating historical valuation averages as laws of physics! Regardless of how consistently the evidence challenges the assumptions behind them. This is financial astrology with better spreadsheets.

Mean reversion may be a helpful advice. But the one thing that never mean reverts is confidence in GMO forecasts.