> If housing prices disconnect and accelerate away from what incomes can support servicing a mortgage, housing is overvalued. If PE ratios start to become wildly unjustified, equities are overvalued.
> This is regardless of money supply.
When vast amounts of money are added to the ecosystem - the economy in this case - the recipients all have the same choices of what to do with the money so that they don't lose it or have less of it. When the expectation is the even MORE money will be added to the ecosystem, then the market participants need to increase their own money faster than the rate that an individual money unit has less ability to purchase its share of the economy.
You have choices across the yield curve which dictate the velocity in which you increase your own supply of money. Some choices are below the expected rate of new money units, so you are expected to lose purchasing power. Other choices are expected to be above the rate of new money units, and this includes housing and stocks.
If there is an excess of money and the purchasable units are not increasing at the same speed, then they will increase in price.
Regarding "overvalued" in the terms of particular asset classes, yes, things can disconnect from this rate of change.
The way we are using that term is fundamentally different and counterproductive to go into a hole about. I am using it to make a simple point: the money will go somewhere.
> This is regardless of money supply.
When vast amounts of money are added to the ecosystem - the economy in this case - the recipients all have the same choices of what to do with the money so that they don't lose it or have less of it. When the expectation is the even MORE money will be added to the ecosystem, then the market participants need to increase their own money faster than the rate that an individual money unit has less ability to purchase its share of the economy.
You have choices across the yield curve which dictate the velocity in which you increase your own supply of money. Some choices are below the expected rate of new money units, so you are expected to lose purchasing power. Other choices are expected to be above the rate of new money units, and this includes housing and stocks.
If there is an excess of money and the purchasable units are not increasing at the same speed, then they will increase in price.
Regarding "overvalued" in the terms of particular asset classes, yes, things can disconnect from this rate of change.
The way we are using that term is fundamentally different and counterproductive to go into a hole about. I am using it to make a simple point: the money will go somewhere.