Shares are trading at about 15 times their forecast earnings, up from the usual 14. This might be sustainable when corporate profits are rising to match the bullish valuations, but at the moment they're not. Those companies reporting higher earnings in the profit season just finished have mostly done so by cobbling together savings from cost-cutting.
And the profit season hasn't been a good one.
According to Citigroup, the market downgraded earnings expectations for about a quarter of companies that reported and upgraded only 18 per cent. These aren't numbers to inspire confidence that earnings will catch up to the market's overblown share valuations. And it is not just the share market that has people worried. House prices keep surging ahead, especially in Sydney and Melbourne.
Since the market bottomed in May 2012, home prices across the five biggest capital cities have leaped 23 per cent, with Sydney prices jumping 35 per cent. The median house price for Sydney climbed above $1 million late last year and shows no sign of slowing. Even derelict homes are sparking bidding wars as first-home buyers and investors try to find a cheap way into the market.
What's worrying about this asset price rise is there are no buffers to protect us this time. Asset bubbles are often accompanied by higher interest rates and a strong currency. When the bubble bursts and the economy needs a bit of propping up, interest rates can go lower and the currency can fall.
But this time around the economy already needs propping up. Interest rates are at historic lows and the dollar has already fallen, so we don't have any buffers.
As Baillieu Holst equity analyst Mathan Somasundaram recently pointed out in a note to clients, it's like driving a very fast car without any seatbelts.
"When something goes wrong and the economy is sitting on asset bubbles, there are no buffers to protect it and the hit will be worse than the GFC," he says.
The sad thing about this latest asset price bubble is no one seems to be enjoying it. Usually when house prices jump and shares surge people start splashing the cash around: restaurants are full, the champagne is flowing and everyone is on Sydney Harbour in their new boat or talking to the interior decorator about how to rejuvenate their new weekender in the Southern Highlands.
There is none of that exuberance this time around. We are all too worried about the economy, unhappy with our politicians and fearful of the future.
Which is a pity. If we're going to be hit by that other B-word - bust - at least we should be rewarded with some fun on the way.
Digging for gems One part of the market that hasn't taken part in this year's gains is the mining sector.
This at least makes sense - iron ore prices hit a new six-year low below US$60 a tonne on Friday. With their strong balance sheets and scope to cut costs, mining giants BPH and Rio Tinto will be able to ride out the slump.
The story is different for the iron ore juniors. The fall in the iron ore price - down two-thirds from its peak of more than US$180 - has hit them hard and there is nothing they can do about it.
Friday's price fall came as BC Iron, Mt Gibson Iron and Atlas Iron were removed from the ASX 200 because they are no longer large enough to deserve a place in the benchmark index. BC Iron's share price is about a tenth of what it was a year ago.
Where there's distress, some people see opportunity.
Mining executive Mick Davis has raised US$5.6 billion ($7.6 billion) for his mining investment vehicle X2 to hunt for unwanted mining assets.
It's a brave move for the former chief executive of mining giant Xstrata and he'll be hoping he has patient investors.
But he might just get the deal of a lifetime.
