|
PureBytes Links
Trading Reference Links
|
The first chart shows S&P plotted as a function of GDP. It is worth noting
that over the past 50 years that the S&P has outstripped GDP with a gradual
upward drift in relative strength from about the 3200 (in 1981) to the 7200
(in 1994) level. After that, in the period from 1995-2000 the divergence in
relative strength was dramatic. Do we explain the divergence by some error
in the assumption that over the long term that growth in the S&P should
generally track growth in the GDP? Or is the calculation of GDP fatally
flawed? Whatever explanation we arrive at, it is clear that "something
changed" in the 1995-2000 period.
This chart would indicate that the "fair value" S&P based upon GDP is
somewhere in the 600 to 900 area, depending upon which linear fit is chosen.
By this argument, the S&P (currently 1150) is 21% to 47% overvalued.
The second chart shows the relative strength of S&P as a ratio of GDP,
normalized to 1.0 in 1980. As you can see from this chart, there was a peak
in the 1960-64 period at about the 3.25 level, a trough in the 1978-1982
period at about the 1.0 level, and then a steady, steep climb to the 4.25
level in 2000. Since then, S&P has been falling faster than GDP, but is
still at the 2.7 level. This chart supports the idea that there is still
excess to work off. If this cycle of reversion to the mean were to repeat,
it might take as long as 20 years for the S&P and GDP to come into
equilibrium, using 1960 to 1980 as a comparison.
The third chart demonstrates that it is unlikely that the S&P's dramatic
increases in excess of GDP can be explained, for example, by above trend
increases in corporate earnings. This chart shows the ratio of S&P to the
GDP series titled "Corporate profits with inventory valuation and capital;
GDP; Billions of dollars SAAR". This picture is similar to that of the GDP
presentation, though the level of divergence is not quite as high (a factor
of 3, instead of a factor of 4), but overall the picture is the same.
------------------------ Yahoo! Groups Sponsor ---------------------~-->
Universal Inkjet Refill Kit $29.95
Refill any ink cartridge for less!
Includes black and color ink.
http://us.click.yahoo.com/XwUZwC/MkNDAA/ySSFAA/zMEolB/TM
---------------------------------------------------------------------~->
To unsubscribe from this group, send an email to:
realtraders-unsubscribe@xxxxxxxxxxxxxxx
Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/
Attachment:
Description: "g64017305702511842562950969934[1].gif"
Attachment:
Description: "g6401730570251187199256054162[1].gif"
Attachment:
Description: "g64_173_57_251174935[1].gif"
|