Friday, March 13, 2009

The 30 Year Equity Cycle?

Taking data from this morning's post on equities vs. GDP, the following charts take the 10 year return of the S&P (including dividends) and subtracts out the 10 year GDP growth...

Is this all just one long-term equity cycle...


  1. So if this trend continues, we can anticipate the next equity bubble in 11 years. 2020... sounds like a good year.

  2. Interesting. I guess the question is are we in this phenomenon now and therefore near the bottom, or are we in the middle of a structural break from recent history.

    Post Depression/WWII
    Stagflation/Oil Embargo
    Present Day

    I guess the next issue after that would be how/if general boom/bust plays into geopolitics.

    Unwinding of cooperative globalization and heating up of international competition for resources and jockeying for leadership seems to be happening right now.

  3. Interesting posts. Bloomberg TV has also shown a chart showing it takes $4-5 of debt to generate 1$ of GDP. This has been steadily rising with an inflection point somewhere in the '70-80's. It would be interesting to overlap that chart with your chart here. Perhaps the bottom of the "30 yr equity cycle" corresponds to coming off the gold standard in the 70's and we are in the midst of a 30yr credit bubble bursting?

  4. Anon. Very interesting claim "it takes $4-5 of debt to generate 1$ of GDP. This has been steadily rising with an inflection point somewhere in the '70-80's."

    I would love to see this to understand it better if you have a link to the video.

    It would seem to me that like anything else the Debt/GDP has an efficiency curve. Once you get beyond a certain amount the return in GDP on debt becomes much lower.

    To rephrase it: There has been excess growth in debt since the 80's which has not yielded similar as high returns in GDP.

  5. All this means is that equity will underperform GDP for some time, and since we are expecting negative GDP for some time well, at least this chart might bottom in a year or so...leaving the equity bottom for the dip buying clowns.

  6. Even after the true bottom was put in, it took about 5 years in each cycle for the upswing to start again, with a few transitory rallies to be avoided.

  7. Here is the link for Total Credit Mkt Debt Outstanding to GDP:

  8. Hi Jake,

    what time series did you use for the s&p 500 total return? I couldn´t find one, that starts so early.

    Please leave a message or a short comment.

  9. a lot of the data used is from, though i did "manipulate" it for purposes detailed above.