In a heroic leap, they assert that stocks are just as safe as bonds, because if you wait long enough their value eventually recovers from downturns. Therefore to equalize the return on stocks with the return on bonds, the Dow should be at 36,000. There are two big flaws in this analysis. For one thing, risk-averse investors take lower returns on bonds because they can get their money out. Contrary to Glassman and Hassett, a stock is not a bond.
People keep buying stocks only because they expect capital appreciation to provide high returns.
The return on stocks can temporarily exceed that average for a time, but not forever. As inflation came down, a given yield could support a higher share price. More run-up was justified by rising growth and profits. But today more and more of the inflated Dow is pure bubble. Alas, an economy that grows at four percent a year cannot indefinitely sustain twenty percent annual growth in share prices.