Equity Valuations Forming Second Biggest Bubble in US History

Jason Kaspar, Contributing Writer
Activist Post

Despite the terrible economic performance of the past ten years (both in terms of the markets and the general economy), equity valuations are now approaching the second largest bubble in United States history, surpassed only by the technology bubble. Both the cause and the potential ramifications of this development are astounding.

Exhibit 1: The cyclically-adjusted price-to-earnings ratio, or CAPE.

This is not a “fad” valuation metric.  CAPE dates back to 1871, offering 140 years worth of data, during which time the mean price-to-earnings ratio is 16. According to Yale University’s Dr. Robert Shiller, the market is now 41% overvalued according to this valuation metric. The only time the markets have been more overvalued was a few brief months in 1929 and the tech bubble.