To The Moon

$S&P 500(.SPX)$ $Invesco QQQ(QQQ)$

U.S. equity markets may appear expensive, but the deeper issue could lie not in asset valuations—but in the currency used to measure them.

Across multiple valuation frameworks, U.S. equities are flashing red. Traditional metrics such as the Shiller Price-to-Earnings (P/E) ratio and the Buffett Indicator have reached historically elevated levels, prompting renewed concern among institutional and retail investors alike. Yet, in an environment shaped by fiat currency devaluation, monetary distortion, and asset scarcity, the right question may not be, “Are stocks overvalued?”—but rather, “Overvalued relative to what?”

Valuation Red Flags Are Waving

By conventional standards, the U.S. stock market is approaching frothy territory. The Shiller P/E ratio—a cyclically adjusted earnings multiple designed to smooth out short-term volatility—has climbed to its second-highest level on record, surpassed only during the dot-com bubble. The straightforward, non-adjusted S&P 500 P/E ratio, while less extreme, also ranks among the top four readings in history.

These elevated levels evoke memories of 1999, 2020, and 2021—periods marked by speculative fervor, monetary stimulus, and ultimately, violent mean reversion. In those prior instances, excess liquidity fueled runaway asset prices. When monetary policy turned restrictive or sentiment shifted, valuations corrected with force.

But today's exuberance is not limited to earnings multiples.

The Buffett Indicator: Flashing Red for Years

Another widely followed valuation yardstick is the so-called Buffett Indicator, which compares the market capitalization of U.S. stocks (via the Wilshire 5000 Index) to the country’s gross domestic product (GDP). This ratio has remained historically elevated for several years—hovering well above its long-term average and recently reaching all-time highs.

Critics argue this distortion reflects not irrational investor behavior, but the unintended consequences of monetary policy, chronic deficit spending, and investor desperation in a low-yield world. Valuations have remained elevated because capital has few attractive alternatives.

Compared to What?

When evaluating whether an asset is expensive, context is key. A P/E ratio, price-to-sales, or Buffett Indicator is only meaningful when compared to a viable benchmark—whether that's historical norms, inflation expectations, or competing asset classes. For example, one of the more egregiously overvalued equities in the S&P 500 today trades at a P/E ratio of 676x. Hypothetically, if this company distributed 100% of its profits annually, it would take over six and a half centuries to recover one’s investment.

This level of overvaluation is extreme—but not unprecedented. In fact, when we examine other global markets, such as Venezuela, we find a full equity index trading at an astronomical P/E ratio of 6,000 and a price-to-sales ratio of 2,700. That’s not an outlier stock—it’s an entire market priced beyond comprehension.

While comparing U.S. equities to a hyperinflationary economy like Venezuela is admittedly provocative, it underscores an important point: valuations can rise far beyond what is historically considered rational—so long as the denominator (i.e., the currency) is losing purchasing power.

Fiat Devaluation Is the Silent Driver

A century ago, the value of a company was determined largely by its ability to generate sustainable profits and distribute them to shareholders. Today, that calculus has changed. In a world of unprecedented fiat currency devaluation, profit generation is increasingly secondary to one overriding concern: capital preservation.

Modern investors aren’t just seeking returns—they’re trying to avoid debasement. If inflation is high and the currency is unstable, even grossly overvalued assets may offer superior purchasing power protection compared to holding cash. This logic helps explain why many are willing to pay elevated multiples for real assets, blue-chip equities, and even cryptocurrencies, despite valuation concerns.

A Word of Caution: Overvaluation Still Matters

While fiat devaluation explains part of the rationale for elevated valuations, it doesn’t exempt markets from corrections. History is replete with episodes in which assets, even during periods of monetary excess, reverted sharply to the mean.

The dot-com bubble ultimately burst. So too did the housing bubble in 2008. In Venezuela—a country where stocks chart a seemingly endless upward curve—there was still a 94% crash in dollar terms in 2018. Extreme volatility and catastrophic drawdowns are not anomalies. They are inherent risks—even in markets where valuations are distorted by macro forces.

Gold as an Anchor: Pricing Assets in Real Terms

To assess the true state of overvaluation, one must consider pricing assets not in dollars, but in real money—namely, gold. When we chart the S&P 500 in gold terms rather than dollar terms, a very different picture emerges.

The gold-adjusted index shows periods of extreme overvaluation and undervaluation far more clearly. For instance, the Great Depression, the end of the Bretton Woods system, and the financial crisis of 2008 all show up as major inflection points. Today, the S&P 500 priced in gold sits within its historical average range—suggesting that much of the perceived overvaluation may be an artifact of dollar depreciation.

This insight extends beyond equities.

U.S. Real Estate: Overpriced or Understood?

Housing in the U.S. appears unaffordable by traditional dollar-based metrics. Median home prices relative to income or mortgage payments look stretched. But when priced in gold, American real estate is near historical lows.

That suggests homes aren’t necessarily “expensive”—the dollar is simply worth less. The same may apply to stocks, bonds, and even digital assets like Bitcoin. What appears expensive in nominal terms may be reasonably priced—or even undervalued—once adjusted for the silent tax of inflation.

Rethinking Valuation: The Denominator Matters

The real problem may not lie with the numerator (asset prices) but with the denominator (the U.S. dollar). Investors who continue to use fiat currency as their primary valuation tool may be misled by charts that appear parabolic, bubbles that seem unsustainable, and multiples that break historical records.

When money is being systematically devalued, all assets float higher—not necessarily because they're growing in intrinsic value, but because the currency is shrinking in worth. In this context, valuation extremes may signal not euphoria—but fear.

Fear of inflation. Fear of confiscation. Fear of purchasing power erosion.

Final Thoughts: Volatility Is Inevitable, But So Is Adaptation

This is not to say markets are immune to crashes. Far from it. Even in distorted monetary regimes, severe corrections can and do occur. But the appropriate investor response is not to flee blindly from “overvalued” assets. It is to develop robust frameworks for relative valuation, risk management, inflation hedging, and capital allocation.

Understanding valuation in real terms is not a luxury—it’s a necessity.

Key Takeaways:

1. Traditional metrics like the Shiller P/E and Buffett Indicator suggest U.S. markets are highly valued—but they must be interpreted in the context of fiat devaluation.

2. Valuations can go much higher than expected when the currency loses value, as seen in hyperinflationary environments.

3. Investors are increasingly prioritizing assets that preserve purchasing power, even at seemingly high valuations.

4. Gold-adjusted charts show that equities and real estate are not as overvalued as they appear in dollar terms.

5. Crashes remain possible, but investors must ask: overvalued compared to what?

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

@Daily_Discussion @TigerPM @TigerObserver @Tiger_comments @TigerClub