The Fed Started The Fire: Buffet Indicator, Shiller CAPE At All-time Highs With Help A Little Help From The Federal Reserve

Singer Billy Joel almost got it right in his song “We didn’t start the fire.” The Federal Reserve started the asset bubble fire.

The famous Buffett Indicator is signalling a massive stock market bubble or serious overheating.

Here is your first assignment for class. Plot the Buffett Indicator (Wilshire 5000 Total Market Full Cap Index/GDP *100 against The Federal Reserve Balance sheet). It should look like the following:

If we look at global market cap / global GDP, all stocks now worth equal to 133% of global GDP, meaning Buffett indicator screaming BUBBLE! But maybe this time is different in an era w/negative real yields & upcoming exponential earnings growth in the tech sector.

How about Robert Shiller’s cyclically-adjusted price-to-earnings (CAPE) ratio? It is climbing rapidly and is above Black Tuesday’s spike in 1929 but still below the peak of the dot.com bubble.

In terms of price-to-book ratio for the S&P 500 index, the P/E ratio is rising rapidly and it just below the dot.com bubble level.

The S&P 500 dividend year is at its lowest point since the dot.com bubble and considerably below Black Tuesday (1929) and Black Monday (1987).

Speaking of Robert Shiller, the Case-Shiller National Home Price Index keeps rising rapidly along with The Federal Reserve’s balance sheet.

What will happen if The Fed stops flooding the markets with liquidity? I don’t think they can stop the fire.

The Federal Reserve Massive Asset Bubble Band

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