Buffetta indicator – measuring the total value of the stock market in relation to the US GDP – this week exceeded 200 percent.
This is the first time since 2021, when the valuation indicator reached this level; Earlier it was only so tall. At the peak of the internet bubble in 2000, the indicator amounted to 150 percent.
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Current indicator levels may suggest that share prices are overheated in relation to the foundations of the economybecause investors assume a significant increase in profits in subsequent years, which it can, but does not have to be realized.
Warren Buffett, the legendary investor and president of Berkshire Hathaway, once said in an interview with “Fortune” that the indicator is “probably the best single measure of what the valuations look like at a given moment.” He also added: “When it exceeds 100 percent – And especially when it reaches 200 percent. – you play with fire“.
Is it already a bubble AI?
Record high level of the indicator is a sign of uncontrollable optimism towards artificial intelligencewhich in recent years has taken the market to dizzying levels. Markets have largely removed aside the fears on the entire economy, based on the hopes of the product of productivity powered by AI, which would resemble an industrial revolution or the birth of the Internet.
The Buffetta indicator confirms other measures indicating market reduction. For example, the Shiller Cape indicator is currently at the third highest level in history – it was higher only in 2021 and 1999. In turn, 19 out of 20 valuation indicators monitored by Bank of America – including the accounting value or the PE indicator forecast forward – it is historically high. The chairman of the Federal Reserve Jerome Powell said last week that the market is “relatively highly priced”.
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Other well -known investors also pay attention to the bubble.
On Wednesday, in a speech on CNBC Leon Cooperman, founder of Omega Advisors, he cited Buffetta, quoting the statement of the President of Berkshire of 1999 for “Fortune”:
“When the bull market begins and when it comes to the point where everyone earns money, no matter what method they use, a crowd is attracted to the game, which reacts not to interest rates and profits, but only to the fact that it seems to be a mistake to remain outside the actions.”
– And this is what is happening now Cooperman added.
The above text is a translation with American Business Insider edition
