About a month ago former Fed head, Richard Fisher, came out andconfirmed the idea that the FOMC’s quantitative easing policies over the past seven years have pushed prices of risk assets, including stocks, beyond what would otherwise be supported by their fundamentals.

There are a few ways to visualize this. The first comes from Dr. Ed Yardeni who tracks a fundamental indicator shown below. Notice the yawning gap between the S&P 500 Index and the major economic fundamentals.

We can also just look at the index versus its components’ earnings. Here’s another gap:

This chart is a gift to anyone with common sense. Have a nice day.
S&P EBITDA vs Price pic.twitter.com/THCADhUwso

— JP Compson (@JPCompson) February 4, 2016

And if you prefer to look at forward earnings estimates, you’ll find another massive gap:

Consensus Long-Term EPS Growth Rate Cut by 4th Largest Amount in 30+ Years I’ve Been Calculating It pic.twitter.com/zo0ZO22Boi

— Not Jim Cramer (@Not_Jim_Cramer) February 1, 2016

 Specifically, Fisher said that the Fed had, “front-loaded a tremendous rally.” All this means is that the Fed pulled returns forward from the future to generate larger gains today. Notice in the chart below that returns have recently been significantly better than valuations (using the Buffett indicator) 10 years ago justified. This is exactly what Fisher is referring to.

The last time this happened was in the late 1990’s. From that peak, stocks fell more quickly than forecast in order to play, “catch up,” to the downside. Interestingly, the 3-year forecasts I generate using margin data show the very same gaps in the late 1990’s and today.

And there are other indicators suggesting these gaps could close sooner rather than later. Bond market risk appetites (very similar to spreads in corporate bonds, junk bonds and leveraged loans) have been falling farther and for a longer period of time than stocks. These are normally very highly correlated to stock prices yet here is another major gap.