Let’s start with I have been here before and I was wrong. I am here now and I still may be wrong.
Looking over some of the most significant market value ratios the expected conclusion is “yes”, the market is overvalued.
This site crystalbull is worth peeking at every so often. There is a lot of data measurements there which is overwhelming. SO I will jump to other statistics that I can male more sense of. Let’s start with the Buffett Indicator which, as I write this (20250829), is 2.2 standard deviations above the historuical trend line. That is a less than subtle way of saying it is way over the normal. Then there is the Shilling PE Ratio and it is well above the average. The simpler S&P PE Ratio ratio is above my comfort level. I get squirmish just looking at a stock that has a PE ratio above 15… and the Shiller PE is running 2 times that.
But there is some explanation for this. First is the Corporation tax obligations is significantly less as tariffs turn our Country’s revenue streams upside down shifting the burden to the everyday citizen. And then the is deregulation which requires far less cost for companies. And equally significant is the impact of AI on productivity. Does this all account for the ratios above only the future can tell. But I remain cautious and keep a dry-powder keg of liquid assets ready for deployment should reality make a suddend entrance.
You decide what the “new” average is but everything returns to the mean. Add to this the John Maynard Keyes quip “The market can stay irrational longer than you can stay solvent”.
Enjoy
comments powered by Disqus