ALL BUBBLES POP: With the S&P 500 above 4,000 the ‘Buffett Indicator’ is wildly out of whack.

The Buffett Indicator measures the ratio of stock market’s total value to U.S. economic output. The idea is that abnormally huge valuations relative to GDP can only stay at those levels, let alone wax from there, if future earnings also soar to devour a much-bigger-than-normal slice of national income. That can happen for a few heady years. But over a longer span, outsized profits trend back to their traditional share of GDP. As the late economist Milton Friedman used to tell me, “Over time, corporate earnings can’t absorb more their traditional share of national output in our competitive economy.” When that “reversion to the mean” in profits occurs, valuations also drop.

We’ve witnessed that pattern many times. The difference now is that stocks have never defied the Buffett rule for so long, nor gotten so incredibly out of the whack with this heretofore gravity-like force.

Look out below.