We are in the midst of a massive equity bubble, led by American stocks exposed to artificial intelligence.
How can I confidently make this assertion, you may ask, even though I have been warning of such a bubble for a few years now, and it still hasn’t burst?
First, US equities are extraordinarily expensive compared to their earnings.
The American philanthropist, economist and hedge fund manager John Hussmann is an intuitive analyst of developments in US equity markets.
Hussmann’s key measure of US equity valuations compares the market capitalisation of non-financial US stocks— he excludes banks, insurance companies etc—to the US economy’s non-financial corporate Gross Value Added, including estimated foreign revenues.
Hussmann’s earnings measure comes from US economic statistics he judges to be less vulnerable to distortion than earnings measured using Generally Accepted Accounting Principles.
Today, Hussmann’s equity valuation ratio is higher than at any time in the last century.
Second, US corporate profits are extraordinarily high—thanks, in large part, to the US government running an unsustainably large budget deficit.
So, how are the two connected and why does it matter?
The Kalecki profit equation, an accounting identity for the entire economy, states that total gross corporate profits must equal the sum of gross investment, capitalist consumption, government budget deficit, foreign trade surplus and dividends—minus household savings.It is to economists what debits and credits are to us accountants.
This equation matters because exceptionally high US corporate profits are, to a significant degree, the mirror image of exceptionally high US government fiscal deficits.
Even though the US economy is running strong, the federal budget deficit last year was 5.8 percent of Gross Domestic Product (GDP).
The European Union’s Stability and Growth Pact prohibits Member States from running deficits exceeding three percent of GDP even during economic downturns, when tax revenues drop and welfare spending rises.
If record high US corporate profits are significantly dependent on unsustainably high US government deficits, they would surely be vulnerable if deficits were brought back to more sustainable levels.
Conversely, if US deficits were left at unsustainably high levels, there would be a material risk that interest rates would rise materially.
This would put US stock valuations under pressure from a different direction.
You may ask, why, if I am confident US equities are systemically overvalued, more market commentators are not articulating the same view?
The answer? Career risk, as explained in a conversation between two financial gurus in early March.
Jeremy Grantham, a British investor and co-founder and chief investment strategist of GMO LLC, a Boston-based asset management firm, was interviewed by David Rosenberg, a Canadian economist who set up his own research firm following a three-decade career on Wall Street.
From the outset, Grantham argued that US equities are seriously overvalued.
“The long-run prospects for the broad market look as poor as [at] almost any other time in history,” Grantham said.
“Simple arithmetic suggests you’ll either have a dismal return forever, or a hefty bear market followed by a normal return”.
Grantham conceded, however, that, “the market can stay irrational longer than the investor can stay solvent”.
He then moved on to the question of career risk.
“Since no one yet has decoded the problem of getting the timing right, that poses an enormous business problem— and I don’t think it’s a viable strategy for a big enterprise,” Grantham said.
“The Goldman Sachs, the JP Morgans, they can never attempt to fight the great bull markets—and never will”.
This, Grantham continued, means that an individual investor—whether they are investing their own money or institutionally investing others’ money—“[will never] tell you to get your money out of the market in an appreciable way. They’ll tickle around the edges, but they will never tell you what you really need to hear”.
Grantham then turned to John Maynard Keynes’ summation of the meaning and significance of career risk.
“Never be wrong on your own. If you can, just stay with the pack, [but] be a little quicker and slicker”, he said.
“Somewhere along the way, get in a minute or two earlier, do it a little better, and you will keep your job.
“And that explains everything else you need to know”.
*Disclaimer: The views expressed in this column, published in the April/May 2026 issue of Accountancy Ireland, are the author’s own. The views of contributors to Accountancy Ireland may differ from official Institute policies and do not reflect the views of Chartered Accountants Ireland, its Council, its committees, or the editor.
CORMAC LUCEY IS AN ECONOMIC COMMENTATOR AND LECTURER WITH CHARTERED ACCOUNTANTS IRELAND