Only bullish assumptions can justify Twitter's price Could Twitter's flotation be the final frontier for US shares? After Twitter's listing this week only two decent-sized companies in the world traded on a higher valuation of enterprise value to sales, one of the few measures for a lossmaking stock. Cheniere Energy is the darling of US natural gas; the other is Dubai's stock exchange, profiting from soaring Gulf share prices. Actor Sir Patrick Stewart, Captain Jean-Luc Picard in Star Trek, was roped in to ring the opening bell for Twitter's trading. One of Picard's ripostes to an aggressive Klingon sums up Twitter's valuation neatly: "You may test that assumption at your convenience." IN Financial Commentary Twitter's price can only be justified by very bullish assumptions about growth, profitability and its share of online advertising. Or, perhaps, by the belief that in frothy equity markets the shares can be sold on at a profit to a greater fool. On day one sellers made 73 per cent. Who is the greater fool? The $1.8bn Twitter raised has pushed the total raised in US initial public offerings this year to more than $50bn, the highest since 2000, according to Thomson Reuters. Junk bonds are also booming. The surge in demand this year has allowed issuers to water down protections for investors, and private equity owners to extract much of the cash borrowed from their companies. Data from S&P Leveraged Commentary & Data shows more payment-in-kind "Pik" and "Pik toggle" bonds, where issuers can roll up interest, than any time apart from 2007 and 2008. In Europe Pik issuance this year is higher than the previous six years put together. Investor demand creates supply as sellers cash in. As Ewen Cameron-Watt, Blackrock's chief strategist, says: "Why do people list? Because they can. It is in biotechnology, rather than social media, that the real IPO boom is under way. Incredibly speculative stocks are able to list thanks to investor demand. The result is that US biotechs are on track to beat the 45 per cent gains of 2003, for the best rise since 2000. Does all this amount to a bubble? One characteristic of a bubble is investors buying things they know (or suspect) are overpriced because they expect them to become even more overpriced - the "greater fool" investment model. At the moment that is not the case, at least outside the narrow confines of Twitter, the biotechs and Bitcoin, the electronic currency. But just because equities as a whole are not in a bubble does not make it right to expect shares to keep making new highs. Still, that is what many people expect. Bullish commentary in US investment newsletters has outnumbered bearish comments as much as now only twice in eight years, according to Investors Intelligence. The first was the week the S&P 500 peaked in October 2007, the other in April 2011, the month of the market's high ahead of the US credit rating downgrade. Other sentiment measures also show an absence of bears and strong confidence among bulls. Investors have been taking comfort from the idea that central banks have their backs, while feeling forced to buy stocks because the yield on bonds and cash is so dismal. "Everyone's positioning for a straight-line year-end rally," says Kevin Gaynor, global head of asset allocation strategy at Nomura, who expects shares to rise. This scale of agreement should worry investors, at least in the US. When everyone agrees on market direction, they are usually about to turn. Longer-term valuation measures such as the Shiller price-to-earnings ratio, based on 10 years of profits, or Q, based on the cost of replacing assets, already say the market is expensive compared to history. Even Wall Street's favoured measure, the forward price-to-earnings ratio for the US, is back where it stood in 2007 (see chart) - although overseas markets are much cheaper, and the biggest companies are rather cheaper. Bargains are hard to see. Société Générale finds the fewest really cheap stocks worldwide than any time since just before Greece went bust in 2010. "In terms of pockets of value in the US market, there aren't a lot of them," says Ben Inker, head of asset allocation at GMO, the Boston value investors. He still likes safe US blue-chips, but sees the rest of the market as too pricey. Investors buying US shares on the basis of fundamentals must think either that the economy will take off and boost corporate revenues, or that profit margins can rise even further from their near-half century highs. That may happen, but growth hopes have been dashed many times, while profitability swings with the economy. Expensive markets do not automatically go down, of course. Shares can always be more overpriced, particularly if central banks keep bond yields low and so force investors to look for yield from shares. But anyone investing for the long run should be cautious about US equities - and should definitely sell out of Twitter.