How Are Assets Valued?

From Wikipedia:

Valuation of financial assets is done using one or more of these types of models:

1. Absolute value models that determine the present value of an asset's expected future cash flows. These kinds of models take two general forms: multi-period models such as discounted cash flow models or single-period models such as the Gordon model. These models rely on mathematics rather than price observation.
2. Relative value models determine value based on the observation of market prices of similar assets.
3. Option pricing models are used for certain types of financial assets (e.g., warrants, put options, call options, employee stock options, investments with embedded options such as a callable bond) and are a complex present value model. The most common option pricing models are the Black-Scholes-Merton models and lattice models.

I am going to add a fourth:

In fairy tale valuation land (U.S. Stock and Bond Markets), assets are currently valued by watching TV, and speculating about whether the FRB is going to keep buying up assets to artificially inflate demand. In fairy tale land, you don't but an asset because it has real value, or because you expect it to produce steady cash flows, you buy it because it is going up. Or, even better (worse in my opinion), you buy it because you have nothing else to do with your money

Right now Wall Street Traders are like an 8 year old at Target. "I already have that, but I want more." "But I brought $50, and I can't find anything I like." "So save it until you know what you want,"says mom. The 8 year old might listen to mom; Wall Street is not listening. They are just wasting their money on more plastic, valueless crap from China. In the end, their money will be gone (oh, wait, it already was, but their mommy, the government, gave them more) and they will be left with a pile of plastic crap. Except this time, mommy is broke.

Wall Street is dreaming...denial is abundant...many current valuations are unsustainable. Fairy tale valuation land might be a fun place to live, until it is not.