William Fleckenstein is a great resource of sanity in the midst of bubble. He is my erstwhile blogging buddy on Silicon Investor before he catapulted into mainstream punditry. In fact, I got schooled a lot from him about Greenspan’s follies.

Bill weighed in today about markets. Watch and think.

“after having completely ignored the bursting of the dot com and the real estate bubbles, i think this a function of the fact that since Greenspan took over the Fed and serially bailed out bigger and bigger problems with more and more easy money, the market evolved into much more of a speculative casino, and a lot more momentum type traders began to operate and everything always resolved itself on the upside… We have had much more of a speculative market that seems not to discount problems.”

and this…

13 times is only cheap relative to the last decade and a half. In the 70s and 80s, the market was trading at 8x and dividends were double where they are. I don’t know how much of those S&P earnings are due to financials: all the financial earnings are pure nonsense, they are making it all up, we don’t know where assets are priced necessarily and they are bailed out on the back of the Fed putting rates at zero. So I don’t believe the earnings and I don’t know what the multiple’s going to be. It could easily trade at ten times.”