At its low in the summer of 1982, the S&P 500 traded at about 31% of GDP. (Ned Davis Data; Jim Bianco deserves credit for the concept.) That was more than two standard deviations below the longer-term (100-year) trend. The trend level was about 65 in 1982.
The longer-term trend level of S&P 500 value to US GDP is about 95%.
That rise of 30 percentage points in the long term trend is a big part of the issue. He ignores this rise completely. A chunk of it comes from our current "long term" including the greatest bubble in our history and a follow-up bubble that was itself no slouch. The real issue is not how far we sit above the "long term" trend, but how far our long term trend is above the equilibrium level.
The foreign-sourced profit share of American corporations has risen from 10% to 30%. Thus an additional 20% of profits now being earned by American corporations originates from their activity abroad. However, US GDP does not include the foreign GDP that is the source of that additional 20% profit share.
But foreign company market share in the US has also grown. Every can of Budweiser SAB brews counts toward US GDP but SAB isn't in the SP500. It's only the net
change in the aggregate share of SP500 companies that matters. He counts the side that favors his argument and ignores the other side completely.
Furthermore, some of those "foreign profits" he mentions are merely tax dodges. By Kotok's logic, almost 2 trillion of SP500 market cap (94b profit * 20.6 market multiple) should be allocated to Bermuda. 2 trillion? Bermuda's entire GDP is only 6 billion.