I don't understand what you're trying to say. You can't easily say that asset prices are "disconnected from their fundamentals" - the price is what people are willing to pay for the future earnings of those companies. People are willing to pay a higher premium for those earnings now than they have in the past. Instead of the comparison to historical highs, try looking at developing countries, with lower P/E's and higher interest rates. Yet investors are still willing to pay a premium for US stocks. If you're going to say that the price is wrong, you need to account for that discrepancy. It seems that the argument you want to make is that people buy overvalued US companies because they think everyone else will continue to buy overvalued US companies?
i'm saying the premium you mention is the additional willingness-to-pay for those equities being the best available, not something intrinsic to the underlying business. it's on top of the value of the cash flows.
in a hypothetical market with 2 relatively correlated (similar beta) stocks, one that historically returns 10% and one that returns 2% and an expectation that those returns continue in the near future, you'd put all your money on the first stock, regardless of the price and regardless of systemic conditions.
in that scenario, you'd expect to be making your most rational choice even if you overpay severely. in the case that the market crashes, you'd lose less money than the opposite scenario. the price says nothing about the value of the underlying cash flows (the fundamentals).
