Comment by tonfa
I don't even think it's about active vs. passive index funds.
Even if people were to do active bets on equity, what matters is the amount of money flowing in the asset class, so as long as there's an infinite stream of long investments into equity (due to 401k, etc.), the prices will rise.
You'd need people to actively balance their allocation between asset classes rather than stock X vs Y to counter those equity bubbles, but I don't think it's happening (and equity becomes too big to fail given the link with things like pension in the US).
If equities are "too big to fail" then governments will do everything in their power to ensure prices continue to go up.
If the right price for equities is 30% of their current value, and if achieving that price means the regime will fall in the next election (or sooner due to civil disorder), then the regime will not allow that to happen.
A regime that controls its own currency has nearly unlimited power to prop up whatever asset classes it wants to, from bonds to equities to housing.
Doing that has consequences like inflation which people don't like, and could cause them to vote the bastards out. But the regime could also print even more money for direct deposits into voters' bank accounts before an election.
So it seems like equities have limited downside until there's a regime change.