The best single measure of where valuations stand at any given moment is the ratio of the total market capitalization to the total dollar value of the GDP. And any time that valuation stands at more than 100% of the total goods and services in the economy means it is time to be wary about common stocks.

It’s a logical conclusion that the economic output of a country and the earnings of its companies, and so their valuation, should bear some relationship to the attraction of investing or not investing.

2014 — 115%
2007 — 135%
2000 — 183%

In the year 2000 the stock market crashed in the dot-com bubble, in 2007 the credit bubble was bursting and for 2014?

Tags: Credit Bubble, Dot Com Bubble, GDP, Market Capitalization

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