Hi all,

I want to share a simple and honest view of why I think the market keeps rising even when many warning signs are visible.

Market looks healthy on the surface but I believe it is being held up by big forces underneath.

I use a simple ratio called the Buffett Indicator to explain this.

The Buffett Indicator is the ratio of total US stock market value divided by GDP. Named after Warren Buffett, who called the ratio "the best single measure of where valuations stand at any given moment".

When this ratio is much higher than normal it usually tells us stocks are expensive. Historically a ratio near one hundred percent was typical. Today the ratio is well above that in the 200% range and that is a warning sign.

But the market is still rising which is unusual. I will explain why later.

I also look at how much people pay for a dollar of company earnings.

A normal healthy company often trades at a price that is fifteen to twenty times its earnings. When investors pay many times that number it means they expect big future growth or they are guessing.

If the average price to earnings is very high it is a sign of froth or a bubble. And now, we are seeing very high price to earnings levels among the largest firms, same level as the Internet Bubble, with top stocks like Palantir trading at 500 PE ratio.

That is not usually sustainable forever.

Here is why I think the market has not fallen even though it looks risky.

Governments are spending large sums of money to support the economy. They borrow a lot and that increases the amount of money in the system.

Central banks have used tools to keep borrowing costs very low and to add liquidity to the financial system. Cheap borrowing and lots of money push investors into stocks real estate and other assets. When yields on safe things are near zero investors say there is no alternative to buy stocks and other riskier assets. This creates a steady demand for stocks that helps prices stay high even if fundamentals are weak.

When governments spend more than they collect they borrow the difference. That borrowed money flows into the pockets of people and companies.

Those people buy goods and services and the money ends up in company revenues and profits. That can make company earnings look higher in nominal dollar terms.

Part of the market rally is driven by higher nominal earnings not necessarily by higher real productivity.

One major consequence is that the rich benefit more than the rest.

Most stocks and financial assets are owned by the top ten percent of people. When asset prices rise those people see big gains in their wealth. People who mainly earn wages and do not own many assets see prices rise for everyday needs like food rent and fuel. Their wages do not always keep up with rising costs.

This widens the gap between the wealthy and everyone else.