We once again find that our path comes across this dead horse and thus, let us flog it one more pointless time.
As you know trillions of baby boomer dollars have been flooding the stock market since the advent of 401k-esque retirement plans. Mindless lemmings, making their monthly contributions to their IRA's and 401k's on auto pilot never stop to think about the ramifications of this because...well...that'd mean they'd have to think! And independently no less!
No no, much better to believe "Tee hee! My 401k is up over 30% this year! Tee hee!"
So, as these trillions of dollars chase a limited number of stocks, the price of said stocks go up and beyond what the underlying profits warrant. And thus the PE ratio is driven to highs that are approaching the 1929 stock market bubble, indicating that the stock market is overvalued by 67% (source Robert Shiller).
Now, I know, I know. We all love it when stock prices go up because "Obama." We think we're rich and that it's good when stock prices go up.
Well, that's if you already own stock. But if you're like most Americans, especially younger ones, you don't own any stock. All this means is that you get to pay 67% more than what historically has been the "mean price" of stocks.
So ask yourself would you like to pay:
$5.50 for a gallon of gas?
$700 for the new XBox One?
$10 for a Big Mac?
$325,000 for a law school?
And realize that it's the same proposition if you were to invest in the stock market today.
Enjoy the decline!