As we have noted, there is a very important difference between a bull market and a bubble. Valuations are certainly one means of distinguishing them. In retrospect, we can recognize previous historic bubbles such as 1929 and 2000. When basic ratios such as Price-to-Sales and Tobins’ Q have reached the levels that marked these bubbles, as they have, we can make a reasonable inference that another bubble has formed.
But there are other measures besides valuation. The most characteristic indicator of a bubble vs. a bull market is that bubbles ignore risk. Bubbles don’t discount risk, they don’t sniff out the next recession, they ignore or even fight the Fed, they don’t fall when earnings do and they do not herd into the long end of the Treasury curve for safety.