I am a bear, but I am not an uber-bear.  I expect a 10%-20% correction, then a move sideways for awhile, not a 30%-50% collapse guys like David Tice are predicting.  Maybe they're right, I don't know.  But maybe the bulls are right and I've got it wrong.  Who knows?  I will, however, change my mind when the facts change.

One of the reasons why I'm not uber-bearish is because of all the cash being used by corporations to buy back stock.  Standard & Poor's released their update of total market yield - dividends plus buybacks - and relative to bonds, the market looks pretty good.

As you can see, the total market yield is above the yields for 2-year and 10-year treasuries. 

The weakness of this argument, though, is that buybacks are ephemeral.  With corporate profit margins at or near all-time highs, if cash flows begin to fall, so too will buybacks.  I do not expect margins to remain as high as they are, though I don't expect margins to collapse either.  Instead, I expect margins will slowly erode over the next few years as operating and interest expenses begin to rise.

It could also mean, of course, that bonds are over-valued.

The other fact is that at some point, this model breaks down.  For example, when Japanese government bonds were yielding 0%, does that mean the proper earnings multiple on the Japanese market was infinity?  No, of course not.  When 10-year T-bonds dropped to 3.1%, was the proper market multiple 32x?  Again, no.  At some point, the relationship no longer works.  I don't know where that level is, but I also will not slavishly follow this valuation parameter either.