As Americans place a record amount of bets into a stock market that continues to rise towards the heavens, few realize how much the Dow Jones Index is overvalued. While some metrics suggest that the Dow Jones Index is very expensive, there is another indicator that shows just how much of a bubble the market has become.
If we compare the Dow Jones Index to the price of oil, we can see how much the market has to fall to get back to a more realistic valuation. For example, if the Dow Jones Index were to decline to the same ratio to oil back to its low in early 2009, it would need to lose 14,500 points or 65% of its value.
To get an idea just how overvalued the Dow Jones is compared to the price of oil, look at the chart below:
H/t reader squodgy:
“My mate keeps telling me how much I’m missing as his investment returns keep climbing.
I must confess to being totally unsettled and insecure over the tidal wave of debt, the economic INactivity, the groundswell of under reported inflationary pressures, the true unemployment figures and the totally unjustified rise in the stock market.
Throw all that in a stew, and my reasoning makes sense….how long can they kick the can down the road and why haven’t the cabal pulled the plug on a totally unsustainable situation?”
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