Today’s stock valuation is more grossly exaggerated and unrealistically inflated than in the 1920s. Historic testament suggests today’s pie-in-the-sky lofty stock prices are irrational and driven by the artificial force of the Fed’s QE…and fueled by illogical investor complacency.
The world’s richest man, multi-billionaire Warren Buffett, once observed that the best metric for determining the level of stock market’s valuation is the Market Cap/GDP ratio. And market sage Buffett ‘outta’ know as he made all his billions in the stock market.
The burning question today in the minds of institutional investors worldwide is:
‘What is the Market Cap/GDP ratio suggesting today’ as the Dow and S&P500 Indices are churning at all-time record highs?’
To objectively answer this provocative question, we need to analyze what stocks have done since early March 2009, when the US Fed initiated Quantitative Easing (QE) with a view to avert a stock market meltdown similar to the 1929 Stock Crash. The chart below shows the Performance (i.e. appreciation) of US major stock market indices (Dow, S&P500, NASDAQ, Russell 2000 & Wilshire 5000 Indices).
This post was published at Gold-Eagle on September 13, 2014.
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