tag:blogger.com,1999:blog-11027528911364475.post402364323421450732..comments2024-02-18T21:10:05.205-08:00Comments on EconomPic: Equity Valuation Based on GDP Growth 2.0Jakehttp://www.blogger.com/profile/07946497592651234440noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-11027528911364475.post-31259519460194721022012-02-09T06:06:45.281-08:002012-02-09T06:06:45.281-08:00Jake,
Looking at your previous chart, trend earn...Jake, <br /><br />Looking at your previous chart, trend earnings growth, shiller's data on long term earnings growth, as well as Arnott/Bernstein's, wouldn't it be more accurate to say that earnings growth trails growth in nominal GDP over the long term? I know that at recent peaks it is has drawn even over certain time frames, but in general that does not seem to be the case. <br /><br />If so, then two thoughts come to mind. Over time we should expect that fair value versus GDP should be lower and lower, and thus today's reasonable valuation for the S&P500 is a bit misleading. Second that the recent periods of earnings drawing even with GDP in your previous chart are based on profit margins that will mean revert over time. Thus the trend line your forecast is based upon is biased upward. <br /><br />Or, I am missing something simple and need correction.Lance Paddockhttp://www.riskandreturn.comnoreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-45925136860172548712012-02-09T01:35:45.125-08:002012-02-09T01:35:45.125-08:00Yes... it's in theory possible, but if growth ...Yes... it's in theory possible, but if growth outside the US is that much more robust, earnings will leave US entities and move to non-US entities (either because non-US corps take over or US corps move abroad). I'm extremely confident in saying US corporate earnings will never be bigger than overall economic activity of the US.Jakehttps://www.blogger.com/profile/07946497592651234440noreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-59261216753405102542012-02-09T01:11:22.671-08:002012-02-09T01:11:22.671-08:00"then earnings would eventually become larger..."then earnings would eventually become larger than the entire economy, which is not possible."<br /><br />That's not quite right, if you mean "US GDP" by "the entire economy". S&P earnings could theoretically exceed US GDP because they include foreign income, which US GDP does not. Gross <b>National</b> Product, which does include domestic-owned foreign income, might hence be a better benchmark for S&P earnings.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-60268137813113181052012-02-08T23:41:18.620-08:002012-02-08T23:41:18.620-08:00David- long story short... I think so, but I can m...David- long story short... I think so, but I can make the pro (corporations are cheaper) and con (corporations are expensive) cases:<br /><br />Pro: corporations should be worth more because they aren't "shedding" market value to investors (i.e. corporate earnings on a market value less cash basis make them seem CHEAP)<br /><br />Con: by hanging on to dividends in the form of cash (vs paying out to investors to reallocate to firms that need capital), corporations may be slowing future economic output of the nation, which would slow their earnings and valuation growth.<br /><br />What are your thoughts?Jakehttps://www.blogger.com/profile/07946497592651234440noreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-69163063566356972502012-02-08T17:37:10.252-08:002012-02-08T17:37:10.252-08:00Jake, how do dividends factor into this? Yields w...Jake, how do dividends factor into this? Yields were much higher in the past than today. Shouldn't that affect the valuation analysis?David Merkelhttps://www.blogger.com/profile/05073877918072914309noreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-22760433683664318262012-02-08T06:45:47.239-08:002012-02-08T06:45:47.239-08:00It's all Excel pasted into PowerPoint and save...It's all Excel pasted into PowerPoint and saved as a .png file. I'll try to create a post outlining the process at some point in the near future.Jakehttps://www.blogger.com/profile/07946497592651234440noreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-47397602038148864162012-02-08T06:37:12.920-08:002012-02-08T06:37:12.920-08:00I love your charts. Do you mind telling me what pr...I love your charts. Do you mind telling me what program you are using, or is it a secret sauce of some sort?The Commodity Guyhttps://www.blogger.com/profile/11518485068505658443noreply@blogger.com