Irrational exuberance Over the course of the last few years American equities, reflected in the value of the Dow 30 index, have spiked and some would argue, beyond reason. So has the more representative S&P 500, together with bonds and property. A quick scan of the PE ratios of the S&P 500 index since 1926 reveals 10 instances when sceptics may have had cause for concern that a bubble was forming. The most significant amongst these were the crash of 1929, the dotcom bust of 2001 and finally, the collapse that followed the global financial crisis of 2008. The cyclically adjusted price-earning ratio of US equities now stands at 30, which is irrational from many benchmarks. The only time it was higher, was just prior to the GFC. Higher and higher When markets enter a bull phase everything, including stocks, bonds and homes, rises in value. This is often the result of a herd mentality, one that fails to comprehend risk and hence not price it correctly. In this instanc
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