The Market Is Dangerously Expensive Now | Kevin Muir

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**Kevin Muir** (1:00)
People somehow believe that the market has gotten less risky today than it was, let's just say, in the COVID lows, right? And if anything, it's become immensely more risky.
Everywhere you look, the market is expensive.

**Adam Taggart** (1:24)
Welcome to Thoughtful Money. I'm Thoughtful Money Founder and your host, Adam Taggart, welcoming you here to a very special discussion with my good friend, Kevin Muir, The Macro Tourist. Kevin, how are you doing?

**Kevin Muir** (1:35)
I'm great, always great to be with you, Adam. Looking forward to this.

**Adam Taggart** (1:37)
Thank you, Kevin. Same here, my friend. Look, a lot going on in the world right now. You were very kind. I know you do your own podcast from time to time, and you prepared some of the topics that you'd like to talk about here, which is wonderful. I love it when a guest does my work for me, and because you're a podcaster, you've got the skill done well. But looking at a lot of the topics that you've written here, a theme running through them is that the market seems to be looking past or getting a couple of important things wrong here.
We'll talk through several of them. We can start wherever you like. But let me assess you at a high level here. We've got markets that are kind of unsinkable at this point. They're being driven by a lot of fervor around the AI trend.
Obviously the peace deal is kind of good news for the market. So whatever worries they had about Iran seemed to be kind of dissipating at this point in time. Are markets too overconfident here, in your opinion?

**Kevin Muir** (2:45)
Oh, 100% without a doubt. Right? Like if we go, and let's just stop and think about something like the equity risk premium. The equity risk premium is something where you look at the earnings yield of the S&P 500 and then you compare it to the bond market and you look at the yield on that. If we think back to March of 2020, the earnings yield on the S&P 500 was 6%, the 10 year was 1%, it was an earnings yield of 5%.
The thing about the earnings yield, equity risk premium is that it doesn't do a very good job at measuring the returns over the next year, but it does a terrific job of measuring the returns over the coming 10 years. If we look back at then, the equity risk premium was screaming that equities were going to outperform for the next decade. Well, now we've had five, six years since then, and we have a situation where the equity risk premium is almost completely the reverse.
The 10 years is 4.5% and the earnings yield is 4 or something like that, 3.5%. What that means is that the equities are priced for a lot of perfection. And yes, over the next year, they could get even more expensive.
But when we think about this for the next five or 10 years, if you're buying at this price, it's not something that's going to do well over the long run. This is not the time to be expanding your risk assets. And the thing about it is, Adam, it's difficult when you see your neighbor making so much money, right? Like that's the real problem, is that everyone's making so much money. And so people somehow believe that the market has gotten less risky today than it was, let's just say, you know, in the COVID lows, right? And if anything, it's become immensely more risky. If we do things like the Buffett Indicator, where we look at the market cap of the market versus the GDP, we're at record highs. If we look at things like the Cape Schiller, again, record highs or highs that are, you know, around where we were at the.com bubble. Everywhere you look, the market is expensive. And although none of these things are timing tools in terms of predicting the next three months, six months or a year, over the long run, these things all work. And therefore, if you're an investor that is able to sit through some underperformance for a year, I think that you'd be very wise to reduce your equity exposure here instead of increasing it like most people are.