Financial Overexuberance: A S&P 500 price-to-book ratio greater than at the start of 2000 is certainly something. Perhaps it is time for Kevin Hassett to repeat his prediction back then that the required real rate of return on equities is about to drop to 1%/year and so (getting even the math of that wrong) equities are going to quintuple in the next half-decade?:

Torsten Slok: “Price-to-Book Ratio for the S&P 500 at All-Time Highs”: ‘This is another piece of evidence that stocks are expensive at the moment… <apolloacademy.com/price…>

And:

Alexandra Scaggs: “Stocks are expensive, and nobody cares”: ‘We’ve reached an alarming, albeit entertaining, stage of any stock market rally: Motivated reasoning and justification. Not only are well-known bears capitulating, but banks are publishing research notes about how this time is really really different, which we’ve heard is always a good sign. Like this note from UBS’s equity strategists this week: “While it is easy to portray lofty multiples as a bearish harbinger, we believe investors would be better served by exploring the reasons for these elevated levels…”. The bank argues the S&P 500 should be trading at a price that’s 22 times next year’s earnings, well above the long-term average of 17. And it lists four reasons that this state of denial bullishness should continue…. Tech [is]… better ad growthier…. Compare… to free cash flows [rather than earnings]…. Narrow spreads to Treasuries… keeping… cost of borrowing low… No recession in sight… <ft.com/content/3ef45d04…>

And:

John Hussman: “New eras, same bubbles: the forgotten lessons of history”: ‘With US equities at record valuation peaks, investors should re-examine their risk appetite…. Similar to its predecessors, this speculative episode has been accompanied by exuberant sentiment about innovation-led growth, perpetual expansion in profits, and a tendency among investors to root expectations about economic and investment prospects in optimism. As The Business Week observed in 1929: “This illusion is summed up in the phrase ‘the new era’. The phrase itself is not new. Every period of speculation rediscovers it…” <ft.com/content/abec3526…>

And:

Edward Harrison: “U.S. Equities Are Euphoric Despite Inflation to Come”: ‘Consumer price inflation… exclud[ing] food and energy… 3.3% through November. After Trump takes office next month, tariff and deportation plans may push levels higher…. Yet market sentiment is euphoric…. [Jim] Reid says “US consumers have never felt so optimistic about gains in the stock market over the next 12 months, eclipsing anything we saw around 2000” when the Internet Bubble was raging. What are we to make of this in a world of still mean-reverting returns <bloomberg.com/news/news…? I think it suggests caution…. The 1995 soft landing…. If you bought the S&P 500 at its March 2000 peak and just held on, because of the big drops caused by the next two recession, by early 2013, you’d have had no return at all…<bloomberg.com/news/news…>

It’s going to be hard for Scott Bessent to maintain Donald Trump’s trust, dependent as it is on the stock market repeatedly reaching new highs in the future, isn’t it?

Yes, simpleminded Shiller CAPE earnings fundamentals suggest a ten-year warranted real return on the S&P 500 of 2.8%/year (if reïnvested earnings are neither dissipated nor directed to private-information excess return opportunities), above the real ten-year Treasury yield of 2.2%/year. But right now the equity return premium is rather thin…