“Based on the market’s current valuation, the assumption investors are making is that inflation and interest rates will stay low indefinitely, even as the Fed continues expanding its balance sheet in support of corporate profits and the broader economy. As we discussed in May, with Warren Buffett’s Fortune article How Inflation Swindles the Equity Investor, this is the same set of assumptions investors were making in the mid-1960s, just prior to a 17-year decline in valuations, in which the S&P 500 lost 62% of its real value. In the past month, the S&P 500 was above the peak valuation reached in 1966.”

http://www.sitkapacific.com/wp-content/uploads/August-2013-Strategy-Letter1.pdf

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