jimfpau

Reports of Equities' Death Are Greatly Exaggerated

Ben Graham and many others have stated that stocks historically return 2-4% above inflation - when comparing GDP growth rates to stock growth rates you must consider not all companies are public - private companies contribute to GDP and a lot of private companies starve their companies of cash they need to fund expansion thus they don't expand - when the aggregate is calculated it may explain difference in GDP growth and stock growth rates - stocks may return better than average growth rates in a cycle of business that's in expansion - but at this point in time and when you take into consideration the unprecedented debt levels of these companies and the continuing credit & consumer crunch expect lower than historical growth rates and thus PE ratios - another point is on DE-leveraging take a look at the growth in value of the derivatives market today versus 10 yrs ago take a look at total world GDP or even look at total value of combined world assets - does this look like a normal ratio to you?