The valuations were astronomical. The Buffet indicator, which measures total stock market capitalization against GNP, was at an all-time high. It still indicates, even after the fall, a seriously over-bloated market. The Shiller p/e is a p/e that attempts to take temporary earnings fluctuations out of consideration, and it, too, was at an all-time high. Valuations based on these two indicators were higher than ever before. Valuations based on simple p/e may have been high before, but those are misleading due to the fluctuation of earnings and the unpredictability of where they're heading. But now, at any rate, they're headed south.
Coupled with this, we have a deficit that is one trillion dollars, even though the economy had a façade of strength. More stimulus spending will only increase the Debt to even more dangerous levels. On top of that, the FED has already cut interest rates to alarmingly low levels, leaving them with few weapons left. In fact, interest rates are so low any further cut simply accentuates the fact that there's almost no cutting left to do, which has the effect of alarming the market further - the opposite effect from that which is intended. For all practical purposes, the FED is out of bullets.
It's a perfect storm. Now comes a worldwide recession, to set off the selling. The selling will continue, on past the point of reasonable valuation because the market always overshoots. I'm not going to be interested in jumping back into this market until I see another 30 percent decline, bare minimum.
