I’ve been talking about a divergence between economic growth and asset prices being bridged by central bank liquidity and here it is, courtesy of FTAlphaville:
US stock market cap to GDP (Exhibit 2), one of Warren Buffett’s favoured valuation metrics, is currently 1.12x, clearly high by the standards of the last 60 years. The measure is at the very least a reminder that growth in 2014, rather than liquidity, is essential to prevent an overshoot of the equity market.
Of course it might deflate owing to a surge in real growth. You never know!
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