Buffett and Shiller: A Dance of Excess and Reckoning

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In the year 2025, the realm of finance witnessed a most curious spectacle: a tempest of uncertainty swiftly followed by a gilded calm. The air grew thick with apprehension upon Mr. Trump’s announcement of April the second, wherein tariffs were to be wielded like a dueling pistol. The S&P 500, Dow Jones, and Nasdaq Composite reeled as though caught in a sudden gust of scandal, their declines most dramatic. Yet, by April the ninth, when the gentleman of the White House paused his tariffs, the markets resumed their waltz, ascending to record heights with a vigor that might have made Lady Catherine de Bourgh herself envious.

This resurgence, one might suppose, was fueled by whispers of rate cuts and the latest fascination with artificial intelligence-a new folly, perhaps, to rival the speculative mania of the South Sea Bubble.

Yet history, that most unrelenting of chaperones, suggests such excess rarely goes unchallenged.

The Buffett Indicator, a Most Esteemed Meter

Mr. Warren Buffett, that paragon of prudence, has long been celebrated for his discernment in matters of value. Though he does not parade his methods, his oft-cited “Buffett Indicator”-the market-cap-to-GDP ratio-has become a touchstone for the astute. This measure, which compares the aggregate worth of public companies to the nation’s GDP, once averaged a modest 85%. On the 14th of September, however, it soared to 218.12%, a figure so lofty it might have raised an eyebrow at the most indulgent of Regency soirées.

One wonders, then, at the $177.4 billion in stocks sold by Mr. Buffett over the past eleven quarters. Is it not akin to a gentleman selling his estate just as the neighbors begin to whisper of a coming frost?

History, ever the stern critic, reminds us that such heights have often preceded the market’s steepest descents-the dot-com reckoning, the 2022 bear market. One might say the Indicator is a mirror, reflecting not only present grandeur but the faintest shadow of future disgrace.

The Shiller P/E: A Reputation on the Precipice

The Shiller P/E Ratio, that more refined cousin to the traditional P/E, adjusts for inflation and smooths the turbulence of a single year’s earnings. By September 18th, it had climbed to 39.86, a figure second only to the exuberance of 1871. For those unfamiliar, this is akin to a young lady accepting six marriage proposals in a fortnight-impressive, yes, but perilously close to the edge of ruin.

When last the Shiller P/E surpassed 30, the S&P 500 and its kin were cast into bear markets of varying severity. The lesson is clear: when valuations outpace earnings like a fortune-hunter outpacing his debts, the reckoning is inevitable.

Corrections: The Market’s Most Unwelcome Visitor

Though corrections are as unwelcome as a rainstorm at a country ball, they are not without their charms-for those with the patience of a Hertfordshire landlady. The analysts at Bespoke Investment Group observed that bear markets, while vexing, are fleeting affairs. The average decline of 20% or more lasts but nine and a half months, while bull markets stretch on with the endurance of a well-told sermon.

Crestmont Research, ever the optimists, assures us that any investor who held the S&P 500 for twenty years from 1900 to 2005 would have ended in profit-regardless of wars, plagues, or the occasional trade war. A most reassuring thought, much like the certainty of a well-plotted novel: chaos, yes, but always a happy ending for those who persevere.

Thus, while the Buffett Indicator and Shiller P/E may portend a coming tempest, they also whisper of opportunity. For the patient investor, corrections are not catastrophes but invitations-to buy at a discount, to act with the quiet confidence of a heroine who knows the plot will resolve itself in due time. 🎽

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2025-09-24 11:48