Valuations too high now for 30 years

I’m not pointing out how high stock prices are, but rather how high valuations are. The latter are a ratio, a comparison of stock prices to the underlying real economic metrics the prices are supposed to reflect.

Supposed to represent but have gone haywire.

Notice that an average level used to be around 0.9. We know that the market goes in cycles . . . low then high then low then high, etc. Valuations were low for the period 1947 to 1956. They were high for the period 1956 to 1972. They were low from 1972 to 1991. Then they started to go high again.

Well, even as late as 1996 you could have looked at a graph like this and felt you were looking at normality. It would not have been surprising to see valuation levels hover in the high range until, like, 2005 or even 2010 before heading back down due to a risk-aversion trend.

But valuations went into a high range for 30 years . . . went crazy high, then higher, then higher.

Valuations have been too high for the whole career expanse of most traders on Wall Street today.

Most traders on Wall Street today and most baby boomer investors have only known abnormality.

They’re in for a shock.