lower98th's  Instablog

This is the first of a series of charts that provide a framework for thinking outside the daily gyrations of markets and politics.  Posting them here has an added benefit:  I will know where to find them.

This Chart depicts a bubble Bust/Recovery algorithm based on GDP/Treasuries and their historic relationship to the US SPX.  One way of looking at "Where we should be."  
 
The trajectory of this Chart by (the maddening but astute) Andrew Butter is based on "other than market value" indicated by GDP and 10 year treasury rates.  For this chart the projection for both GDP and tens is 3%.  The fundamental (black) line on the bottom chart is the baseline for reversion to the mean.  The bottom line of the triangle in the pink "bust" charts the historic average of recovery trends.  If the market deviates from the bottom line, to measurably inside or outside of the triangle, a reversal is likely. 

"The line to watch is the bottom of the triangles, whenever the price goes up faster than that line, there is a risk of a reversal.

So the model says that by August 2016 the S&P 500 will be flirting with 2,000 which works out at an average annual growth of about 10% a year, whether that will keep up with “real” inflation, is of course debatable."