"Last week, the CAPE ratio of the S&P 500 Index surpassed 27, versus a historical norm of just 15 prior to the late-1990s market bubble. [The CAPE ratio – also known as the Shiller P/E ratio – looks at inflation-adjusted earnings over a 10-year period to control for cyclicality in earnings.]"The S&P 500 price-revenue ratio surpassed 1.8, versus a pre-bubble norm of just 0.8. On a wide range of historically reliable measures (having a nearly 90% correlation with actual subsequent S&P 500 total returns), we estimate current valuations to be fully 118% above levels associated with historically normal subsequent returns in stocks."Advisory bullishness (Investors Intelligence) shot to 59.5%, compared with only 14.1% bears – one of the most lopsided sentiment extremes on record."The S&P 500 registered a record high after an advancing half-cycle since 2009 that is historically long-in-the-tooth and already exceeds the valuation peaks set at every cyclical extreme in history but 2000 on the S&P 500 (across all stocks, current median price-earnings, price-revenue and enterprise value-EBITDA multiples already exceed the 2000 extreme)."
"We are at that stage in the cycle where I begin to doubt my own sanity. I've been here before though and know full well how this story ends and it doesn't involve me being detained in a mental health establishment (usually)."The downturn in US profits is accelerating. And it is not just an energy or US Dollar phenomenon – a broad swathe of US economic data has disappointed in February."One of the positive surprises, payrolls, is a lagging indicator. The $64,000 question is not if, but rather when will investors realize what is going on?"
"The single biggest problem in our economy," according to Greenspan, "is a lack of real capital investment."
"When investor preferences are risk seeking, overly loose monetary policy can have a disastrous effect by promoting reckless speculation and enhancing the ability of low-quality borrowers to issue debt to yield-starved investors."This encourages malinvestment and financial distortions that then collapse, as we saw following the tech and housing bubbles. Those seeds have now been sown for the third time in 15 years."