That's the thing, Igy--it's not insanity. I used to think as you do, and I am still cautious about things, but it's a different world.
There is nothing insane about attempts to preserve wealth. Yes I understand that this all has economic activity as its base, but more important than the substance is the symbolic representation thereof. Yes, I said more important. The economic activity will always be there, but what matters is how it is characterized, who benefits, and to whom the gains accrue.
As you know, markets are all about confidence, and THEY ALWAYS HAVE BEEN ever since the inception of the abstraction known as a freely-alienable share.
US equities are now like a community of the rich, living in expensive housing. This is done for purposes of maintenance and exclusivity, and relies on the maintenance of standards. Bad apples can spoil the bunch, and must not be allowed in. Rising prices helps ensure that. I have seen it around the world, both in "the real world", and in the world of goods and services.
In fact, US equity markets might still be too democratic in terms of money participation, but now that algos are running everything and small individuals have no control, even though capital contribution is democratic, effective control is not.
What we have to worry about most at the moment is some smart-azz computer programmer (aka "software engineer", lol), getting really greedy and wanting to make big. If a few of them wanted to, I have no doubt they could do it, because that is now the locus of control. Yes there are downward governors on the markets which minimize the potential damage, and yes gov'ts will shut the markets temporarily, and the programmers know this--so, their opportunity lies in the other direction: up.
Even if they want to make big either legally or illegally, their main chance probably lies in the upward direction. Knowing how to benefit from such a potential scenario is just as important as trying to prevent its happening in the first place. I am an idealist, but I hedge my idealism with reality.
And the reality is that there is no way that you can justify, or even explain, market behavior over the last period using historical referents...not the 80's, not the 00's, not 2012, not the late 20's. You struggle with this constantly, and the farther it goes, the more you withdraw into the world of incredulity.
Yes I know you are still in the game and are just wary, which is certainly legitimate, but IMO you are using incorrect bases of comparison. I have been there before, and have seen the seemingly impossible happen--on some things I have missed out, like Toronto real estate, but on some others I have made good, like art.
Take RE as a good example, T-O or VAN. I remember guys showing up at the door in the 80's with briefcases of cash. $300k for a $50k house? Are you kidding? Absurd.
What, now it's 1995 and the same place is $400k? Absurd. 2005 and $500k? Ridiculous. 2015 and $800k? Laughable. 2017 and $1.2M? Totally insane, right? Every time one looked at the market it was ridiculous by any standard: median income, median household wealth, CMA to other nearby locations, median home equity, median domestic debt burden, blah, blah, blah, blah...by EVERY historical, and indeed any external, referent, the market was ridiculous at each and every point, and utterly unsustainable.
I will tell you flat out, no matter what you hear, it is the Chinese effect. I know, my family is right in the middle of it in both VAN and T-O. Ground zero, in both places. It's the same thing as is now happening with the US equity markets: the average market participant getting orders of magnitude more wealthy, control becoming more concentrated through price inflation, and underlying it an attempt to preserve wealth in a vehicle that has some exclusivity, and therefore a measure of security.
Same thing with the US equity markets. T-O real estate rose in 2016 by 28%, by some estimates--this, after already being insanely too expensive by historical standards. Yes I know the tax situation in VAN helped, but that's not the full story--and even in VAN, prices are still off the charts, it's just that volume is down a bit. When something rises 30% a year and you take a 15% tax hit, it doesn't matter when your goal is wealth preservation. In fact it's still laughably good because you are still gaining 15% while trying to be conservative.
Regulation, more than any other factor, controls who participates in the markets. In VAN and T-O they can to some extent control the flow of Chinese capital, but only to some extent. In the USA, I suppose that capital flow controls could be implemented, but the problem is that the GOV itself is involved in the markets, both directly and indirectly, and actually dependent upon them to a significant political extent. They have every incentive to court big international money, and they have done exactly that, and very successfully.
And the trend continues. Even if volumes fall, as in the VAN real estate market, prices stay high and continue to rise, because people DON'T NEED TO SELL. As prices continue to rise, ownership and control further concentrate, raising exclusivity and raising prices.
These markets are self-referential, and can be affected by only structural control mechanisms, NOT by participatory control mechanisms. Only big players have structural control, by far the most significant being the GOV. Are pension funds allowed to short? You see what I mean.
As long as it is in GOV interest to keep prices moving upward, they will move upward. Changes in GOV are of course important, as are motivations inimical to GOV prosperity. Other nation states realize this which is why they are trying to hedge their US involvement with other things, as now their fortunes are linked to US fortunes more than they wish them to be, which decreases their autonomy.
But freedom doesn't mean squat without a nickel in your pocket, and they know it, and those who control them are rich, and are happy to be so. Poor foreign political ideologue rulers in the right places would be dangerous, but there just aren't any. The world has gotten very, very small in this respect. Real war could bring things crashing down, but everybody knows that, and nobody who matters wishes to pay the price.
No matter how historically or comparatively internationally overpriced you think the US markets are, they can go higher yet, and not just by a bit...by a LOT. After they skyrocket, certain niche international markets will follow suit.
I have no idea what sort of time horizon to apply to these mechanisms. I could see things being stable for another 20 years.
Of course, I could, and would, exit at the drop of a hat. I might be getting too old to play this game, and will put myself out to pasture soon. Part of me can't believe I'm still in, but as many things, you are either in, or you are out--and the fortunes of those who are out look to be dimming rapidly relative to those who are in.