Mike,
How much did the GDP grow over decades prior to the 90s?
i think it was around 3-4%. however, we are coming out of a bubble, so i think a lower forward range, perhaps 0-2%, is more likely. for comparison, look at what happened to japan in the 90s after its bubble collapsed. but in any case, even if you assume 3%, here is what the numbers look like:
US stock market capitalization reached an all-time record 180% of GDP in March 00; in May 01, the figure was 164% of GDP. (as a comparison, the figure in 1929 was 70% of GDP). assuming a generous 3% CAGR in GDP and 11% growth in the Wilshire 5000 (US market proxy), the comparison is:
TODAY (May 01): Stocks are 1.64; GDP is 1
so ratio is 1.64:1 (down from 1.8:1 at peak of bubble)
VS.
Hypothetical scenario for 20 years from now: Stocks are 1.64*1.11^20; GDP is 1*1.03^20
in other words, the ratio would be 13.2:1.8, or more simply 7.33:1
so with a generous GDP assumption of 3%, stock market valuation as a percentage of GDP would go from today's 164% to 733% !!! that percentage would be more than 10 times greater than the percentage in 1929. ooh la la!!!! -ggg-
that seems unlikely to me. |
