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Politics : Ask Michael Burke

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To: Mike M2 who wrote (51120)	3/10/1999 10:46:00 AM
From: Eggolas Moria	Read Replies (2) of 132070

Regarding the matter of market cap to GDP ratio, I fail to see the causal connection between the ratio and measures of valuation. Every time a strategist has brought it up and I've asked the question, the answer has been, "because it's worked in the past as an indicator." Well, so did the super bowl indicator. GDP is a measure of economic output. Market cap is a function of the number of public traded companies and their valuation. Thus far, no one has been able to explain the linkage in fundamental terms. Moreover, when I first read the alarms about this ratio it was in the late 1980s or early 1990s by the Bank Credit Analyst. So much for its value as an indicator.

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