Monday, January 24, 2011

Great. Another stock market bubble.

The S&P 500 index is only 10 points away from the 1300 level, and has erased the losses of late 2008.

Unfortunately there's little data to support the idea that stocks are worth what they're trading for today. The dividend yield of the S&P is only 1.85% right now; typically the yield has varied between 3% and 6%, so by historical standards the S&P is worth between 400 and 800 today.

On the technical side, optimism is at a multi-year high, so I expect at least a correction soon before this speculative rally continues much higher.

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