If you think a delusional market is healthy, it’s time for a psychiatric exam.
What diagnosis would an experienced psychiatrist offer when presented with the bizarre behavior of the U.S. stock market? We assume that the wild mood swings of greed and fear are “normal” for markets devoted to short-term profit and speculation, but the stock market’s disconnect from reality is far beyond mere mood swings.
The stock market thinks it’s solidly on pavement, but in reality it’s like a car flying off a cliff: the Wiley E. Coyote moment is just ahead. There’s nothing but air beneath the stock market.
Consider the reality of PE expansion from a price-earnings (PE) of 10 at the bottom in 2009 to 18+ today, while profits are stagnant. And what is driving this expansion other than a delusional belief that profits will magically reverse and log massive gains in the second half of 2016?