If Gawker Is Writing About Stock Bubbles We Probably Aren't In One

Although the story told about Joe Kennedy deciding to bail on the market in 1929 when his shoeshine boy started giving him tips is most likely apocryphal* the psychology lesson is probably true.
As is the inverse.
From the Columbia Journalism Review:

Bubbles, bubbles everywhere
Stocks, like housing, are not detached from realistic prices

Press hysteria about another housing bubble seems to have cooled off a bit in the last few months. Which is good, since we’re not in another housing bubble.

But once you become convinced that we’re in a bubble, you start seeing them everywhere. Take this post by Gawker’s Hamilton Nolan headlined “Bubble Watch: Ridiculous Stock Values Edition.”
Which ridiculous stock values? Nolan quotes a Bloomberg report on growing earnings multiples:

The benchmark gauge for U.S. equities has risen 14 percent relative to income over the past 12 months to 16 times earnings, according to data compiled by Bloomberg. Valuations last climbed this fast in the final year of the 1990s technology bubble, just before the index began a 49 percent tumble. The rally that started in March 2009 has now outlasted the average gain since 1946, the data show.

And adds this:

A replay of the year just before the collapse of the tech bubble, and a rally that is, historically speaking, ripe for its end. What could go wrong?

Now, it’s somewhat interesting that P/E ratios have risen so fast. But the pace of an increase in average P/E doesn’t in and of itself tell us much of anything about a bubble. For that, you have to look at the P/E multiple itself.

And it’s at 16 times earnings, which is hardly hair-raising. That’s right at its historical average through bull runs and busts.

It’s still well below the average P/E ratio for bull markets, as Bloomberg points out in the very same story:

The average multiple during bull runs since 1957 has been 17.4 times reported profits, about 10 percent higher than today’s ratio, data compiled by Bloomberg show. Advances ended at 20.2 times earnings on average, 26 percent higher than the present level.

Price increases—even large, rapid ones—don’t necessarily mean something is a bubble. They have to be accompanied by investor expectations that have become detached from fundamentals....MORE

*This Bernard Baruch story rings truer:

...“Taxi drivers told you what to buy. The shoeshine boy could give you a summary of the day’s financial news as he worked with rag and polish. An old beggar who regularly patrolled the street in front of my office now gave me tips and, I suppose, spent the money I and others gave him in the market. My cook had a brokerage account and followed the ticker closely. Her paper profits were quickly blown away in the gale of 1929."... 

Kennedy had a very different view of Wall Street, exemplified by this quote:

"It's easy to make money in this market," said Kennedy, famously, to an associate. "We'd better get in before they pass a law against it."...

And  from our June '07 post "Robert Kennedy Jr., Global Warming and Wall Street":

...Already a wealthy man Joe Kennedy had another Wall Street trick up his sleeve, a classic pump-and dump. In 1929 he and some other rascals got together to run the .com of the day, Radio Corporation of America.

What a run it was! The pool picked up $5 million in ten days. My BLS inflation calculator says that's a bit over $60 million today (although the PBS special linked below says $100 million).

When the question arose as to who should manage the pool the answer was easy. Who better than the specialist in the stock, Michael J. Meehan! PBS did a good job on their show "The Crash of 1929", even interviewing Meehan's grandson. Here are some of my links, Senate Hearings (4 page PDF), 1948 SEC chief counsel memo on the Act of '33 (5 page PDF), Colliers story on the early SEC....