Nobel winner's math is showing S&P 500 unhinged from reality

New York

IF you sold every share of every company in the United States and used the money to buy up all the factories, machines and inventory, you'd have some cash left over. That, in a nutshell, is the math behind a bear case on equities that says prices have outrun reality.

The concept is embodied in a measure known as the Q ratio developed by James Tobin, a Nobel Prize-winning economist at Yale University who died in 2002.

According to Professor Tobin's Q, equities in the US are valued about 10 per cent above the cost of replacing their underlying assets - higher than any time other than the Internet bubble and the 1929 peak.

Valuation tools are being dusted off around Wall Street as investors assess the staying p…