Chart of Doom

“Time to Worry About Stock Market Bubbles,” says David Leonhardt:

With relatively little fanfare, the stock market has become expensive again.

While the rest of economy has been growing frustratingly slowly for almost five years, stocks have been rising at a boomlike clip. An investment in the Standard & Poor 500-stock index would have doubled from early 2009 through early 2013 and then gained an additional 18 percent over the last year.

Relative to long-term corporate earnings – and more in a minute on why that measure is important – stocks have been more expensive only three times over the past century than they are today, according to data from Robert Shiller, a Nobel laureate in economics. Those other three periods are not exactly reassuring, either: the 1920s, the late 1990s and in the prelude to the 2007 financial crisis.

The time to get worried about a stock market bubble was when the Fed got in the business of propping up equities prices, just like the time to worry about a housing bubbles was when the Fed got in the business of propping up home prices. I mean, the first time the Fed got in the business of propping up home prices, although you should also certainly worry about this second time.

Remember how bad it was when the bottom fell out of the housing and financial markets a few years ago? It will be much better this time, they swear.