I defer to Jeremy Grantham on issues of macro-market valuation issues because his logic is always impeccable on these matters. If you normalize profit margins (“if profits don’t mean-revert then capitalism is broken”) and mean-revert valuations (along with interest rates), the S&P’s fair value is about 900 right now. A certain group of folks will always try to come up with justifications for higher valuations during a bull market but these justifications will prove faulty… eventually. Doug Short does a lot of Grantham-like mean reversion work on his website: dshort.com.
