My view that stocks are now in a bubble is further bolstered by the fact that the roughly $4 trillion dollars of global bonds still sporting negative yields (down from $14 trillion last year though the figure is rising again with German 2- and 5-year bund yields plunging back into the red) and European and Japanese central banks are still behaving as though the world is in the midst of a financial crisis. Low interest rates provide a bogus discount rate that the stock market uses to justify exorbitant valuations, creating a vicious cycle of irrationality that led to our current situation. All financial assets are trading at values divorced from their ability to generate the cash flows necessary to support them.
The truth is, investors are bidding stock prices to one record after another based on nothing more than fairy tales.
One of those fairy tales is that corporate tax reform is going to cure what ails the American economy, but when you look at the numbers it appears even Jack’s beanstalk wasn’t that big.
With all due respect to President Trump, his proposed reforms aren’t going to be nearly enough to fix our problems.