August 13, 2025 | All’s Well That Ends Well

Margin debt (people borrowing against their security portfolios) has now topped $1 trillion for the first time in history, +25% over the past year alone. Other, lesser, margin-abuse peaks occurred before major bear markets/recessions (grey bars below) since 1995, courtesy of Rosenberg Research.

Among professionals, dry powder is also in short supply. Trend-chasing portfolio manglers managers are all in with portfolio cash ratios at a record low of just 1.4%.

The tech-heavy NASDAQ 100 index is today priced at 105% of the US economy (GDP) for the first time ever (shown below since 1990).

It is not just the Nasdaq index that’s grossly inflated.

Shopify is back to being the largest weight in Canada’s TSX composite. Three tech stocks–Nvidia, Microsoft and Apple–make up a record 20% of the S&P 500 market capitalization, and the top ten most expensive account for 40%, versus the prior mania record of 27% at the 2000 cycle top.

The historically informative Shiller price-to-earnings ratio for the S&P 500 at 38.8x is a range only seen briefly in the stock market euphoria of 2000 and late 2021 (below since 1975 courtesy of www.multpl.com).

Within the S&P 500, the technology sector’s price-to-sales ratio hit an all-time high of 10x (black line below since 1990), compared with 7.8x at the 2000 tech bubble top and a median ex-tech ratio of 3x (gold line below).  Paying 10x sales for a singular company has long been recognized as crazy, for a whole index? Financially suicidal.

The Wilshire 5000 Total Market Index (Wilshire 5000) is a broad U.S. stock market index designed to measure the performance of nearly the entire investable U.S. equity market. It is currently trading at an all-time high of 212% of US GDP, compared with 172% in February 2021, 137% in March 2000 and a long-term average of 155%. Warren Buffett has famously said that a market-to-GDP valuation over 140% is dangerous.

At the same time, junk debt (with a credit quality less than investment grade) is priced so high as to have the lowest yield spread over similar dated Treasuries since 2021 and 2007.

Market cycles are a full circle, and current valuation levels suggest return-free risk from here. It’s a fantasy to think that the valuation-insensitive capital that’s in today will get out intact.

All’s well that ends well. We can either look foolish by shielding capital and minimizing exposure to irrational exuberance or holding on as prices mean-revert lower once more.  The former can feel hard for a while, the latter tends to leave lasting financial, emotional and psychological harm. Consciously or not, we each pick our poison.

Danielle Park August 13th, 2025

Posted In: Juggling Dynamite

Next: Health Prepping: So Now Cheese Is Poison? »