Yesterday’s article caused quite a stir. If you missed it, you can read it here.
The basic premise is that when you value the stock market based on objective metrics that cannot be fudged, it’s more overpriced than it was at the 2007 peak and is rapidly approaching the 1999 peak.
However, the underlying reason that stocks are so ridiculously overpriced has to do with another asset class: bonds.
The fact is that by keeping interest rates at zero for seven years, the Fed has created a bubble in bonds. Back in 2008, the US’s Debt to GDP was just 65%.
Thanks to seven years of ZIRP, the US Government was able to go on a massive spending spree, ballooning the Debt to GDP to above 105% where it sits today.