There is no way to compare today's "valuations" with anything in past history. Only the jackasses on Wall Street and ETraders still pretend that there is any rational basis for comparison. Today's inflated asset values are the end result of three decades of serial asset inflation now culminating in unprecedented outsourcing, debt-sponsored stock buybacks, rampant monetary inflation and 0% interest rates for six years straight.
Today's markets are priced for obliteration
Profits are almost 3x higher as a % of GDP than they were in Y2K, and total debt is twice as high
Baselining stock prices to the Profit/GDP ratio
That's what the chart below does, it multiplies stock values by the profit/gdp ratio for equivalent comparison. Using this methodology, today's Wilshire price is accurate as depicted on the left axis (ignore the axis title), whereas 2000 and 2007 values have been adjusted lower to show that those valuations were less stretched relative to today's massively inflated profit levels.
Looking at it a different way, profits have averaged 6.5% of GDP since 1950, which implies a 40% haircut from these levels on that basis alone, not to mention normalizing GDP for debt accumulation...
PRICED FOR OBLITERATION
Profits as % of GDP: 4% in 2000, 11% today
Profits declined 50% in 2008, following a mere 3% decline in GDP.
17:1 Leverage
Operational and financial leverage have increased steadily since 2007 i.e. due to massive outsourcing and debt used to fund dividends and buybacks:
Total Debt Divided by Population i.e. $180,000 per person
Doubled since Y2K
GREED IS BLINDNESS
GREED IS BLINDNESS
