Melt-Up

by Nick Tompras  ACR Alpine Capital Research - see full PDF below

Today’s equity market valuations have reached levels not seen since early 1998, when the S&P 500 broke 1,000 for the first time. At a price 30x higher than cyclically-adjusted earnings, yours truly opined at the time that the market was highly overvalued. Unaware of my sentiments, the index jumped 50% over the next two years to over 1,500. A melt-up for the ages.

Valuation gravity finally intervened, as it always seems to do. With no prompting by any explicit event, other than, perhaps, drunken investors finally coming to their senses, high-priced stocks began to decline in the second quarter of 2000. The S&P 500 eventually slid below 800 by...