Correct me if I'm wrong, JWR, but P/E10 is a 10 year average P/E, or related to a 10 year average, possibly weighing later years more heavily.
All of JWRs NON-yield focused work is trying to 'value' the market. In the sense of predicting future returns, where the majority of the return is share price changes. At high P/E, for a volatile asset, there is a greater probability of a decrease in P. At lower P/E, the probability is greater for a share price increase. IOW, he is trying to give guidance for anyone who wants to buy low, sell high.
Holding a lot of cash, on the sideline, is the recommendation whenever P/Es are high. That is, Bogle's speculative return isn't in the cards. Speculative return is an expansion (increase) in the P/E.
If your withdrawal strategy relies on the sale of fund assets (depleting a portfolio, eating seed corn, spending capital), rather then harvesting yield, you are VERY concerned with falling portfolio value (share price depreciation). JWRs work simply suggests that it's more probable for share prices to fall, at high P/Es, which is devastating to a retirement portfolio. Keeping a lot of cash, on the sideline, avoids, or at least minimizes, share sales during down market conditions.
JWRs work with P/E10 is statistical and probabilistic in nature. That's what happens whenever share price behavior is the major issue with a strategy. And that is the major shortfall of such stratagies, one that doesn't affect yield based strategies.
For example, falling share prices are bad for withdrawal strategies that rely on the sale of assets/realizing capital. Falling share prices have absolutely no affect, notwithstanding a few opinions expressed on this forum, on yield based withdrawal strategies. The thing that is bad, for yield based strategies, is falling dividend (and interest, BTW) distributions.
If you look at some of JWRs results, whenever he quotes safe withdrawal rates, based on P/E10, the numbers are always quite low, compared to yield focused strategies. The reason is the uncertainty in the 'growth' component of total return, which, at times, is negative growth, or falling share prices!
To think of this in more simple terms, a yield based withdrawal strategy has one major rule, that is, withdraw, and spend, no more then the yield of your portfolio, and YOU control that yield, by your choice of assets. The corresponding 'rule' for a growth focused strategy would be to spend no more then the total return of your portfolio. The problem is that, in any one year, or series of year, the total return of your portfolio might be negative, that is, it's value, at the end of the year, is less then at the beginning of the year.