stock market valuations

I feel like, perhaps especially after that last post, I should say something about "Is the stock market overvalued?", which seems to be a popular question.  As usual, insofar as the question is well-formed, the answer is "I don't know", but that's not a fun answer, so, without making too long a post, my answer instead is "The bond market is overvalued."  I (obviously?) don't really know that, either, but if you're comparing stock prices to some sort of flow (dividends, earnings, etc.), the appropriate ratio is surely something that changes with time in a way that should correlate with interest rates, and the estimates I've seen lately of "the equity risk premium" are all higher than historical norms — which is to say (very crudely) that stocks are undervalued relative to bonds relative to their historical relationship. In perhaps more basic terms, if you're looking to sell stocks because you think they're overvalued — not, insofar as it can be made distinct, because you think they're especially risky — then your alternative is basically cash.

I'll add a couple of links here:

• Vox makes more or less the same point
• If you adjust for corporate cash holdings, market P/E ratios are much lower than the naive calculation.
• A pdf from the New York Fed indicating that the equity risk premium is high.  The actual value they give is higher than most other sites, but Damodaran also suggests the ERP is on the high end of normal.
• I will acknowledge that the ratio of corporate earnings to GDP is high, and seems likely to revert to lower values as the labor market (finally) tightens.
• Added June 1: Siegel and Shiller have their usual opinions.

I spent more time on this post than I meant to.