The Buffett Indicator is a ratio used by investors to gauge whether the market is undervalued, fair valued, or overvalued. The ratio is measured by dividing the collective value of a country’s stock market by the nation’s GDP. There is even a global version of the Buffett Indicator: global market cap / global GDP.
And its a doozy!
But it we look at the Shiller CAPE (Cyclically Adjusted Price Earnings) ratio, we can see a relative bubble compared to 2007, but it is second only to the dot.com bubble of 2000.
But today is different than 2007 or 2000. Why? The Federal Reserve has become a permanent fixture in blowing asset bubbles, like in home prices. Yes, we are back to rates of growth in house prices from the peak of the housing bubble in 2005.
When will Powell and the FOMC take the oxygen mask off? Or will they??