Ten companies are 40% of the index, and eight of them are selling to each other. The last time stocks were this expensive was 1999. It didn't end well.
I think CAPE may actually understate how extreme current valuations are. The unusually large fiscal deficit is supporting corporate profits and profit margins through the Kalecki-Levy mechanism, which mechanically boosts the “E” in valuation ratios. If you instead look at total market cap relative to GDP, which is less affected by elevated profit margins, today's valuation is meaningfully above the 2000 peak. So the comparison with 1999 may actually be too generous to today's market.
At this point, all i can say is "you da' man!
thank you,
DFH
I think CAPE may actually understate how extreme current valuations are. The unusually large fiscal deficit is supporting corporate profits and profit margins through the Kalecki-Levy mechanism, which mechanically boosts the “E” in valuation ratios. If you instead look at total market cap relative to GDP, which is less affected by elevated profit margins, today's valuation is meaningfully above the 2000 peak. So the comparison with 1999 may actually be too generous to today's market.
Good point, actually. Thanks, Attila!
Thanks, Lau! And I forgot to say in my first comment, what a great article. Very thought-provoking, as always.
Thank you, Attila. Which reminds me, I still haven’t gotten back to you on your earlier comment. I’ll do that as soon as I clear my desk.
You take the complicated, much thrown around, make it simple and interesting with a personal appraisal.