With stocks at all-time highs, it’s hard not to think that we are in the midst of a bubble. According to one analyst, not only are we in a bubble, but it’s one of the biggest of all time.
Stocks are now about 80% overvalued on certain key long-term measures, according to research by financial consultant Andrew Smithers, the chairman of Smithers & Co. and one of the few to warn about the bubble of the late 1990s at the time.
The five dates listed at the start of this article, he says, are the only times since 1802, when data began being tracked, when stocks have been 50% or more overvalued according to these measures. And only two of those bubbles — 1929 and 1999, both of which were followed by disastrous crashes — were bigger than today.
Just to clarify, Smithers thinks we are in the third biggest bubble in U.S. history.
The Fed has been adamant that the most expansionist monetary policy in history is not causing inflation. That could well be, if one defines inflation narrowly with a focus on consumers’ prices.
More broadly stated, the Fed has generated an immense amount of price inflation in the asset markets. The third biggest stock bubble of all time is just one way to look at the situation.
Janet Yellen inherited the “successful” monetary policies that Ben Bernanke started. The banking system is saved for the time being by a the Fed purchasing its bad assets, and price inflation remains soft given the ongoing sluggish recovery. But as this “recovery” has resulted in new stock bubble, I’ll be holding off a little while before celebrating.