The f-cked up thing about asset bubbles is that although it’s easy enough to detect one when it’s forming, it’s impossible to say when a given bubble will burst.

Insult to injury: The nature of bubbles is such that the most spectacular gains tend to accrue in the latter stages, so if you get the timing wrong (and you will), you’ll miss the best part trying to avoid the worst.

Hence the famous George Soros bubble quote: “When I see a bubble forming, I rush in to buy, adding fuel to the fire. That’s not irrational.”

This is another one of those teachable moments where I indulge my penchant for disabusing young investors of what I consider to be pernicious myths. There’s a tendency in what I’ll call “market pop culture” to believe that every bubble has a Michael Burry. Or two or three or five. And that such people are heroes.

Similarly, market participants (and despite being an investor myself, I’ve grown to dislike that label, so I no longer self-apply it) have an overriding inclination to take bubble prognostications more seriously when they emanate from people they’ve heard of, which is to say from people who made a lot of money in capital markets at some point.

Here are two uncomfortable facts:

1. There aren’t a lot of people who made a lot of money betting on burst bubbles. Burry was an anomaly, he didn’t get the timing right (or not exactly right anyway) and unless you plan to develop a mental disability like his, you’re not going to replicate Burry’s temerity and fortitude when it comes to placing bets and sticking with them until they pay off. [Insert Zach Galifianakis Rain Man quote.]
2. There’s no data anywhere to back up the notion that “name brand” investors are any better at timing bubbles than anybody else, which is a polite way of saying that more or less all your B-School idols are full of sh-t and the entire hedge fund industry is a racket wherein slick-talking egomaniacs peddle alpha promises they know are fanciful to bilk adult children for management fees.

To that second point, the older I get, the more admiration I have for Warren Buffett, frankly. And the more proud I grow of my 16-year-old self for recognizing Jack Bogle as the man to read for an honest accounting of the surest path to long-term wealth accumulation in markets.

With all of that said, we’re in a bubble. Almost surely. And no, this time isn’t different. I’ll quote Harley Bassman: It is never different this time.

Headed into 2025, the S&P had gained 20% or more in four of the preceding six years. The benchmark’s returns in the other two years were +16% and -20%. So far this year, the index is up nearly 14%. Measuring from the lows in December of 2018 (when, it should be noted, Donald Trump was likewise in a standoff with Democrats that presaged a government shutdown and rumors were likewise flying that Trump planned to fire Jerome Powell), the S&P’s up 185%. The Nasdaq 100’s up 310% over the same period.

The updated figures below are familiar. I’d encourage you to note that there actually isn’t a lot of comfort to be had in the notion that the equal-weighted S&P is “fairly valued” compared to the cap-weighted index. Put as a question: How does the grey-blue line in Exhibit 35 rank, percentile wise, if you strip out the 2021 “stimmy” craze? Sure, the equal-weighted index is cheap compared to the cap-weighted benchmark, but at the risk of trafficking in vacuous nothings: So what?

I’ve said this over and over again: Trying to time the market based on valuations is a fool’s errand. It’s tantamount to trying to call a top, which is synonymous with attempting to pinpoint the moment when the bubble bursts. As noted here at the outset, that’s just as likely (actually far more likely) to lead to underperformance than it is to make you Michael Burry.

That said, large-cap valuations in the US at this juncture are such that if this time’s not different, equities are approaching “we’re f-cked” territory. (And yes, I obviously realize the aggregate’s a reflection of nosebleed multiples for a handful of high-fliers. Remember that I write about this all day, every day. I’m an encyclopedia. I know the numbers far better than you do even if you’re chained to a desk on Wall Street, God bless your long-sufferin’, rat-racin,’ clock-punchin’ soul.)

At 23x, the forward multiple for the S&P is above the 95%ile line on a box-and-whisker plot. In other words: There’s no room for error here at all. If anything happens to force an across-the-board rethink of next year’s earnings assumptions, and that rethink is enshrined in top-down and bottom-up consensus EPS estimates for the index, the implication is that the multiple would inflect skyward, on a 90-degree angle, likely topping the dot-com peak by two or more turns.

Of course, that’s not how it’d play out. The market would smell trouble far before analysts would have time to cut estimates, so you’d get a preemptive, anticipatory de-rating. I think that’s very likely over the next three- to six-months notwithstanding a good seasonal for equities around the holidays.

It’s true that rate cuts can help justify nosebleed multiples, but the risk-free rate isn’t Fed funds. It’s the 10-year. And absent a deep recession, there’s a floor under US yields from the belly on out the curve due to fiscal concerns, rule of law jitters and the perception that a more politicized Fed will de facto adopt a higher tolerance for inflation.

None of the above should be construed as an attempt to call the top**, particularly given that discretionary positioning (i.e., positioning among human investors) isn’t stretched on every metric, and maybe not even on most metrics. All I’m saying is that I wouldn’t be terribly surprised if we see SPX 5500 again before we see SPX 7500.

[**Not investment advice. Do your own research. Consult your local financial advisor after you finish at the Great Clips two doors down in the same strip mall.]