A few other nice graphs.
...
That last graph is CAPE I assume?
More fun facts...
Corporate profits are running about 11% of GDP right now, but historically they have always returned to the average of 5.5%. You could claim that "this time is different" and that technology has made us more profitable but that would also have increased GDP proportionally. That ratio to GDP is a pretty consistent measure across time.
It will fluctuate but generally increase above the average in one time period are matched to lower than average performance later. For instance, if you were a CEO who wanted to maximize your short term compensation, you might try a manipulate near term profits by shedding trained workforce, forgoing capital and R&D investments,etc. You might can leverage the profits higher for a while, but those tactics will reap lower earnings later. But Heck, by then you may have already retired to one of your 6 houses in the Hamptons.
If those profits start reverting to their historical mean, the current valuations will start to look insane. Maybe insane by half.
Oh more fun. Most of us wouldn't borrow money the invest in the stock market. I know there are sophisticated investors out there that do, but I suspect most of them are snorting coke.
However many corporations are borrowing cheap money now to buy back their own stock to inflate the values. I'm not talking about buying back your stock with money you've earned. I'm talking about taking on debt to manipulate stock values. And these purchases are price insensitive so that only serves to further inflate current prices. And when there rest of us by that stock, we are buying the debt.
The larger problem with repurchases is that debt-financed buybacks effectively put investors on margin. As corporations have borrowed in order to aggressively buy back their stock near the highest market valuations in history, existing stockholders have quietly become heavily leveraged, without even realizing it.
http://www.hussmanfunds.com/wmc/wmc150817.htmBe careful out there.
Wab
