Significant stock market gains are not a U.S.-only story; Europe and Japan are also rallying. However, these broad-based surges are difficult to fully justify with fundamentals like AI, earnings, or yields. This suggests markets globally are "a bit high" and potentially overvalued.

The concept of "Nihonjuron," the theory of Japanese uniqueness, was used to rationalize extreme asset valuations that defied Western financial logic. This cultural narrative created a national blind spot, allowing investors to believe that traditional fundamentals didn't apply to Japan's seemingly superior economic system.

Historically, US earnings outgrew the world by 1%. Post-GFC, this widened to 3%. Investors have extrapolated this recent, higher rate as the new normal, pushing the US CAPE ratio to nearly double that of non-US markets. This represents a historically extreme valuation based on a potentially temporary growth advantage.

A recurring theme in every historical market bubble is the belief that current events are unique, justifying inflated valuations and risky investments. Recognizing this narrative is a key behavioral signal for investors to exercise caution.

A successful 15-year strategy of overweighting US equities was reconsidered when the P/E multiple discount for the rest of the world reached an unprecedented 40%. This shows that even the most durable investment theses have valuation limits that trigger a strategic shift toward more balanced, benchmark-like weights.

The CAPE ratio, which compares stock prices to average 10-year earnings, is at a level seen only twice before in history: just before the 1929 Great Depression and the 1999 dot-com bubble. This indicates a severely overvalued market ripe for a major correction.

As the first major economy to reach its debt limit, Japan's bond market is seizing up, forcing capital into riskier assets like equities. This dynamic of a bursting sovereign bond bubble inadvertently fueling the real economy is a likely preview of the path the United States will eventually follow.

Foreign holdings of US equities are at a historic high, double their share of global GDP compared to the peak of the 2000 dot-com bubble. This extreme concentration, largely driven by the AI trade, makes the global financial system uniquely vulnerable to a downturn in the US stock market.

While the S&P 500's 19% gain since last year seems strong, it significantly lags global performance. An ETF tracking worldwide stock markets is up 42% in the same period, with markets like South Korea and the Eurozone showing even larger returns. This indicates a potential "sell America" trend among global investors.