tag:blogger.com,1999:blog-11027528911364475.post6227190632060426541..comments2024-02-18T21:10:05.205-08:00Comments on EconomPic: Is the S&P 500 at Fair Value?Jakehttp://www.blogger.com/profile/07946497592651234440noreply@blogger.comBlogger14125tag:blogger.com,1999:blog-11027528911364475.post-63104531663745632162010-04-27T16:49:16.111-07:002010-04-27T16:49:16.111-07:00burt- email sent...burt- email sent...Jakehttps://www.blogger.com/profile/07946497592651234440noreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-51251410445028512662010-04-27T13:34:46.780-07:002010-04-27T13:34:46.780-07:00Hey Jake: I've done some work putting this val...Hey Jake: I've done some work putting this valuation measure into an actual system and running it. Results are good. If you want to discuss, I'm at rothberg at alum dot mit dot eduThe Commodity Guyhttps://www.blogger.com/profile/11518485068505658443noreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-50220930394992430012010-04-27T08:04:04.140-07:002010-04-27T08:04:04.140-07:00another good point, but global growth should in th...another good point, but global growth should in theory help grow the U.S. economy as well.Jakehttps://www.blogger.com/profile/07946497592651234440noreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-36269176492534496552010-04-27T07:20:13.470-07:002010-04-27T07:20:13.470-07:00Interesting but what about international earnings ...Interesting but what about international earnings for companies in the S&P. These have become much more significant and may continue to be out-sized in the future?Unknownhttps://www.blogger.com/profile/17923794774451723917noreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-58360276403488359462010-04-27T06:03:56.842-07:002010-04-27T06:03:56.842-07:001. Warren Buffet has suggested similar methodology...1. Warren Buffet has suggested similar methodology, comparing stock market to GNP, so the idea isn't new. It's a good idea though, it's very hard (impossible?) for corporations as a group to grow much faster than the economy.<br /><br />2. Dividends are far less volatile than earnings and index prices, they tend to grow fairly smoothly.Itamar Turner-Trauringhttps://www.blogger.com/profile/06729091374592239565noreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-69831450117908911912010-04-26T17:30:06.768-07:002010-04-26T17:30:06.768-07:00I know of some analysts who look at the ratio of c...I know of some analysts who look at the ratio of corporate profits to GDP. This is somewhat similar to your measure, and it also provides a pretty good signal.<br /><br />You can get data for total market cap from Wilshire Associates from 1980. Prior to that, you will probably have to search the academic literature.The Commodity Guyhttps://www.blogger.com/profile/11518485068505658443noreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-72676558143219568592010-04-26T15:58:27.532-07:002010-04-26T15:58:27.532-07:00henry bee- i matched the "actual" GDP to...henry bee- i matched the "actual" GDP to the 10 year forward change in the S&P 500 as of that "actual" date (i.e. the 12/31/09 data was Q4 '09 data, which was last updated March '10).<br /><br />"actual" because nothing is actual and the data is constantly revised.Jakehttps://www.blogger.com/profile/07946497592651234440noreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-55713338648272158142010-04-26T15:25:28.228-07:002010-04-26T15:25:28.228-07:00Jake, nice regression! although as my usual skepti...Jake, nice regression! although as my usual skeptical self, did you trail the GDP data by 3 months to avoid look-ahead bias? The quarterly GDP data is always released 1 quarter later.Henry Beehttps://www.blogger.com/profile/12176365362835822750noreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-24939678560854628212010-04-26T14:27:32.641-07:002010-04-26T14:27:32.641-07:00burt- that would be interesting to see. any idea w...burt- that would be interesting to see. any idea where i can get my hands on that data?<br /><br />btw- is this type of analysis new? if so, i need to throw my name on it somehow!Jakehttps://www.blogger.com/profile/07946497592651234440noreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-33727724352074314692010-04-26T13:16:29.788-07:002010-04-26T13:16:29.788-07:00That's a really great regression. I just repli...That's a really great regression. I just replicated it myself. The test statistics are better than the more famous valuation measures such as Schiller's 10-year P/E or Tobin's Q!<br /><br />Wouldn't it be even better if you used the market value of the US stock market rather tan just the level of prices?The Commodity Guyhttps://www.blogger.com/profile/11518485068505658443noreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-28352924403516666292010-04-26T11:58:10.308-07:002010-04-26T11:58:10.308-07:00agreed, but dividends are tough to predict. they a...agreed, but dividends are tough to predict. they are low now, but will they increase in 5-10 years? <br /><br />overall, the analysis surprised me. both by its predictive power in the past (who knows about future), as well as relative valuation today vs. years pastJakehttps://www.blogger.com/profile/07946497592651234440noreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-7372395199296526302010-04-26T11:55:38.978-07:002010-04-26T11:55:38.978-07:00(My original comment was posted after only reading...(My original comment was posted after only reading half the post, so it was wrong :)<br /><br />While we're at average valuation, we're also at a very low rate of dividends compared to the past. So even if index returns (i.e. capital gains) are average, total return can be expected to be lower than usual.Itamar Turner-Trauringhttps://www.blogger.com/profile/06729091374592239565noreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-44445047713065301912010-04-26T11:52:03.330-07:002010-04-26T11:52:03.330-07:00This comment has been removed by the author.Itamar Turner-Trauringhttps://www.blogger.com/profile/06729091374592239565noreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-47713334849088096222010-04-26T07:30:21.577-07:002010-04-26T07:30:21.577-07:00I can't help but think this is somewhat distor...I can't help but think this is somewhat distorted by including times when GDP is shrinking or the S&P is clearly in a bubble phase and mentally I'm thinking "what if we got rid of the outliers?"<br /><br />My immediate self-rebuttal is that the market doesn't really care though and doesn't give mulligans so I guess even though it includes data that's clearly during overvalued times and that affects the average it would make sense.<br /><br />FascinatingMike Hardyhttps://www.blogger.com/profile/01942604571555687523noreply@blogger.com