For over a year now, sober-minded observers have warned that the AI bubble can’t last for much longer. Unfortunately for everybody, it’s managed to outperform even the most cynical doomsday forecasts, to the degree that the US economy is now in even worse shape than it was right before an infamous downturn in the late 1920s.
That’s according to the Telegraph‘s economics columnist Russ Mould, who notes that the overvaluation of US stocks has passed the level that brought the stock market to its knees to kick off the Great Depression.
As Mould observes, US stocks trading on the S&P 500 are now priced 41 times their average earnings over the last decade, a measure called the Shiller CAPE ratio, named after laureate economist Robert Shiller. Said another way, investors are paying $41 for every $1 of average annual profits the S&P 500 has generated over the past decade.
It’s more or less the financial equivalent to the tide receding before a freak tsunami. While it can’t tell us exactly when the wave will come, or how big it will be when it does, a Shiller ratio this high indicates danger; the fact that at some point in the not-so-distant future, things are going to get rough. To put today’s ratio of 41 into context, the historical average stands at about 17.3, according to Investing.com. On Black Tuesday, the day that kicked off the worst financial catastrophe in modern history, the ratio was 32.5 — 8.5 points lower than it stands today.
