Is the S&P 500 at Just the Right Level?

The first chart shows the S&P 500 Index Value from 1976. "Wild ride" is not an overstatement. A casual observer could take the 1984 to1995 trend pattern out to the present, as shown, and conclude that the current Index Value is about right.

(Click to enlarge)

Comparing US GDP, Corporate Profits and the Index over the same time period strongly supports that conclusion as shown on the following chart.

(Click to enlarge)

Given the economic outlook it would not be surprising to see further equity deterioration. Did the managers of the country’s largest endowment funds, whose equity allocations have been reported to be about 20% for some time, know something we did not? Maybe they just looked at the data, and maybe they will, along with the few other people who saw the handwriting on the wall, start buying in the not too distant future.

Comments

[Smarty_Pants:]

The author should repeat the chart 1 exercise with the Dow and start drawing the straight line in 1932. He will find that the market jumps far above the 60 year straight line trend beginning at the point where the author starts his exercise in the early 1980s.

The bubble started in the 80s with the government's increased deficit spending. The period shown by the author's straight line is growth generated by credit expansion and the sharp jump upward in the mid 90s is the start of the frothy stock bubble. Greenspan's irrational exuberance.

Extend the longer term straight line growth from the 30s and you will arrive at a more modest estimate for the S&P 500 around 500 instead of 900.

Reversion to the long term mean will require further drops in the major indices.

2008 Oct 17 11:18 AM

[sieraromero:]

We should get 1 more leg up in the charts on the S&P 500 Index to close in on something close to the old highs. Whether this is a short term move or a move covering a longer period of time, I am not quite sure of as yet. However, I do know that if it is a move of a shorter duration, than we are in for a very very nasty long term (generational) decline, such as we have not expierienced in our lifetimes.

2008 Oct 18 09:38 AM

[ashizashiz:]

Dear Fellow Victims:

Together, daily, we share news of the latest in the greatest financial ripoff in the history of history. Billions---literally--... human beings left to suffer and freeze and starve over the next 5-10 years, as the Plutocrats and Kleptocrats hunker down with their riches, their mansions, their Lamborghinis, etc.

Well, I take my lessons from 2 sources: Mohandas K. Gandhi and Billy Ray Valentine. Gandhi you know, I hope. Valentine, played gracefully by a young Ediie Murphy, was the guy in TRADING PLACES who goes from being poor to rich, at the expense of Winthorp, played gracefully by a skinny Dan Aykroyd. ANYWAY....

So, here's the point:

1. Gandhi organizes a day of "fasting and prayer" to protest British rules in India. Of course, a day of fasting and prayer also means 500 million Indian workers off the job: no trains, no buses, no public works---which effectively leaves 100,000 British ex-pats in India totally cut off from the world. A bad day for the Brits, to say the least.
2. Billy Ray Valentine (Capricorn) points out to Lewis Winthorp--as Winthorp cleans out his shotgun barrel in preparation, one can only assume, for a knee-cap shattering meeting with The Dukes brothers (Randolph and Mortimer Duke, of Duke and Duke Commodities, INC.)---that the way you really get a rich person back is NOT by shooting him, but instead by making him poor.

OK, you with me so far?

Now for the union of Gandhi and Valentine.

It seems to me that the real criminals in all of this are the bankers, the folks in the financial industry, the Paulsons and Bernankes and Fulds and all of the folks who have become wealthy on the backs---and on the debt---of the rest of us. This system of FRACTIONAL RESERVE BANKING, a system in which money = debt, this system can only function and make millionaires of a few while leaving the rest in the dust if and only if the rest of us choose to play.

Look, what terrified Paulson more than anything---and then he convinced Bush to be terrified, and he convinced the scumbags in Congress to be terrified----was the idea of a financial system, whose very existence is dependent upon growth and therefore upon more and more debt, collapsing because the borrowing cycle had been shut down.

These total assholes admitted it, and they assumed the rest of us wouldn't really get it. They said, flat out, that we are risking a systemic financial collapse unless we can get the credit markets working again.

Look, I want you to PLEASE watch this video RIGHT NOW. Afterwards, come back to my post.

video.google.com/video...

OK, now...here comes my thesis...well, not really...ummmm....more like my proposal.

Let's stop playing! I say, get together with people in your community and come up with a plan so that (a) everyone can eat and (b) everyone can stay warm and (c) everyone has water to drink and (d) EVERYONE STOPS PAYING FOR THINGS THAT ARE MAKING THE MoFos RICH!!!

To hell with paying taxes! Think about taxes for one second. All of our taxes have to go up, because we have, to this point, lent the FED over a TRILLION dollars---and Scumbag Paulson is giving all of OUR money (money that we have earned through our hard work as teachers, and carpenters, and farmers and police officers, etc.) to the banks so that the credit market will loosen so that the banks will loan us back our money...at interest!!! I say, no more!!!!!!!!!!

I say we need to come together in our communities and protect each other and help each other and go on strike from giving our hard earned money away so that amoral scum like Henry Paulson can make millions more dollars off of us. I am done with that!

We cannot do this alone. Alone we are pariah who get nicked by the FBI and thrown in jail and called extremists. I say, this needs to be a mass movement. A mainstream movement of protest against a financial system that CAN ONLY SURVIVE on the growing debt burden of the ordinary folk.

I may not be William Wallace, and while I like Mel Gibson as an actor I find some of his views about religion rather abhorrent...but I will say this: It is time to claim...OUR FREEDOM!!!!!!!!!!!!!!!...

2008 Oct 18 06:04 PM