I expect the US equity market to fall 30% to 40% this year. The catalyst for the turn in sentiment will be static (or falling) corporate profits, rising inflation and higher interest rates. Mania will drive the collapse. When the dust settles, the US economy will slide into recession. Consumers will retrench to pay down debts. The dollar will fall. It will be the dawn of a two-year bear market.
To be bullish about US financial asset markets today, you have to believe that the economy has reached a "higher plane of sustainable productivity". Never before have investors in US equities discounted such a high rate of real profit growth. Even allowing for a rise in average inflation over the next few years to 2.5% to 3.0%, current valuations assume a real rate of profit increase around twice the long-run average.
There's no doubt that the US economy has enjoyed a long expansionary phase. Seven years of uninterrupted growth, with barely a hint of inflationary excess, have been underpinned by a big up-tick in technological investment. But the evidence for a secular rise in productivity growth is patchy. It's true that manufacturing productivity is high and still accelerating.