The chart below couldn't be any clearer. Do you ever wonder how a long term average happens? The knuckleheads on CNBC don't concern themselves with such trivial matters. They are busy shilling stocks every hour of every day. The market capitalization of our stock markets as a % of GDP has averaged 62% between 1925 and 2010. This average was achieved by the market capitalization being above that level and below that level over the 85 years. As expected the chart shows the market going vertical starting in 1990 and topping out with the bursting of the dot com bubble in March 2000.
You would think that since the market is still below levels of 1999, we'd be below the long term average. You'd be wrong. Even at the panic lows of last March, the percentage reached only 71%. Sorry folks. Reversion to the mean requires that the level go below the long term average of 62%.
The level has again reached 103%. As we enter part 2 of this Depression the GDP will decline along with the stock market. The market will need to drop by 40% to 50% in order to get the world back into balance. Reversion to the mean always works its magic. Always.