Interpretation of the key paragraph

Now that we’ve reached the most extreme valuations in the history of the U.S. financial markets, all that needs to happen for Fed policy to become ineffective is for investors to consider the possibility of meaningful losses; to become concerned that others will attempt to take profits before they do, in a market where the bulls are all-in and the only ones out are historically-informed, value-conscious investors … who know that run-of-the-mill valuation norms are less than one-third of current levels.

https://www.hussmanfunds.com/comment/mc210808/

The “Warren Buffett Indicator” tracks the total value of all stocks in relation to the value of all goods and services in the economy (GDP).

The total value of all stocks was 65% of GDP in 1960; 55% in 1970; 45% in 1980; 55% in 1990; 75% in 2010. So it averages around 60%.

It makes sense that about 60% of economic activity would be related to stock prices. After all, there are plenty of goods and services that are produced outside of the realm of corporations that issue stock.

In 1997, for the first time, the total value of all stocks was the same as (100% of) GDP. That must have seemed a little strange — and certainly an indicator that stock prices were too high. At the height of the tech bubble in 2000 it had gone crazy-high to 150%.

Stocks worth more than all economic activity!

Well, the indicator is currently at 237%.

Aggregate US Market Value: $54.6 Trillion
Annualized GDP: $23.1 Trillion
Buffett Indicator: $54.6T ÷ $23.1T = 237%