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re: what's supporting the market?
Posted on 4/12/11 at 3:58 pm to kfizzle85
Posted on 4/12/11 at 3:58 pm to kfizzle85
quote:
kfizzle85
I read your report. It was hard to tell where they were going with it. One thing they reported was that EPS grew .6% annually over the 40-year period. Their findings suggest that there is a lag behind GDP growth, but real stock prices have gone up in the long term. This backs up JPLSU's claim. The Japan reference was interesting, but they also experienced a unique situation of incredible deflation due to a variety of factors different from our current predicament.
What exactly are you trying to say?
This post was edited on 4/12/11 at 4:05 pm
Posted on 4/12/11 at 4:07 pm to acgeaux129
quote:
We may intuitively think of stock returns as a result of the underlying real economy growth.
However, we have observed that long term real earnings growth fell behind long term GDP
growth in many countries over the observed period.
Several factors may explain this discrepancy. First, in today’s integrated world we need to look at
global rather than local markets. Second, a significant part of economic growth comes from new
enterprises and not the high growth of existing ones; this leads to a dilution of GDP growth
before it reaches shareholders. Lastly, expected economic growth may be built into the prices
and thus reduce future realized returns.
In their refined version, supply-side models tie a country’s stock returns to its GDP growth, but
they do not suggest a perfect match between the two variables. Instead, they view real GDP
growth as a cap on long-run stock returns, as other factors dilute GDP before it reaches
shareholders.
However, the empirical analysis of the presumed link between GDP and stock growth has certain
limitations. Although we use a relatively long-term international equity data set, the analysis
results are dependent on the start and end dates of the time series, since the economy and
stocks follow cyclical patterns. Another issue concerns the role of investors’ expectations. If
expectation of future GDP growth is entirely built into today’s valuations, stock price movements will tend to precede developments in the underlying economy. A deeper analysis is needed to test for a lag between the two time series.
What exactly are you trying to say? I'm saying the correlation between gdp growth and stock market returns is far from perfect, and in some cases, even negative, so to suggest that simply because gdp grows, that stock prices will grow, is faulty logic, which is proved thusly in this paper.
This post was edited on 4/12/11 at 4:11 pm
Posted on 4/12/11 at 4:14 pm to kfizzle85
Right. However, EPS lagged behind GDP growth, but it still rose with it in the long term.
Help me out here. I'm a young Econ undergrad guy, just trying to understand.
![](https://images.tigerdroppings.com/Images/Icons/Iconcheers.gif)
Help me out here. I'm a young Econ undergrad guy, just trying to understand.
![](https://images.tigerdroppings.com/Images/Icons/Iconcheers.gif)
Posted on 4/12/11 at 4:15 pm to acgeaux129
quote:
What exactly are you trying to say? I'm saying the correlation between gdp growth and stock market returns is far from perfect, and in some cases, even negative, so to suggest that simply because gdp grows, that stock prices will grow, is faulty logic, which is proved thusly in this paper.
I'm trying to say that JPLSU's assertion that stock will go up as GDP grows seems, in the long term, correct to me. Based on macroeconomic principles, that seems about right. Don't know why you said that was "inch deep."
That, and the guy questioning him is a count.
This post was edited on 4/12/11 at 4:18 pm
Posted on 4/12/11 at 4:21 pm to acgeaux129
It did, and as I was trying to make the point to JP, its not a matter of 0 correlation (or negative correlation) versus perfect correlation, its just a matter of the amount of correlation, among other things, specifically as I think the short paper pointed out, multiple expansion. I just think its a bit misleading to post this gdp chart with exponential growth and try and suggest that its some kind of mirror image of stock prices. Whenever you're talking about "long-term" variables, you're always going to have arguments about where to draw the line. This isn't any different.
Posted on 4/12/11 at 4:25 pm to kfizzle85
quote:
I just think its a bit misleading to post this gdp chart with exponential growth and try and suggest that its some kind of mirror image of stock prices.
understandable, I kind of skimmed over that post. The correlation is still very strong.
quote:
Whenever you're talking about "long-term" variables, you're always going to have arguments about where to draw the line. This isn't any different.
Agreed.
![](https://images.tigerdroppings.com/Images/Icons/Iconcheers.gif)
Posted on 4/12/11 at 4:30 pm to acgeaux129
Nah you're right, I'm being a count, I freely admit that. I wasn't trying to be a count to you though.
Posted on 4/12/11 at 4:31 pm to kfizzle85
Ha, actually I was talking about the other guy that doesn't know anything. Although you were kind of a dick. ![](https://images.tigerdroppings.com/Images/Icons/Iconcheers.gif)
![](https://images.tigerdroppings.com/Images/Icons/Iconcheers.gif)
Posted on 4/12/11 at 5:51 pm to kfizzle85
quote:
What exactly are you trying to say? I'm saying the correlation between gdp growth and stock market returns is far from perfect, and in some cases, even negative, so to suggest that simply because gdp grows, that stock prices will grow, is faulty logic, which is proved thusly in this paper.
Well, and even if the correlation were perfect with respect to the U.S. (i.e. 'U.S. GDP up' leads to 'U.S. Equity Markets up'), that still may not have relevance for the U.S.-listed company with a significant percentage of its operations overseas, as is becoming more and more the case for more and more companies. I guess the argument could be made that since the U.S. economy is doing better and U.S. investors have more cash lying around as a result, the rising tide would lift all ships. However, the company with foreign operations' earnings may not warrant such a rise in price, especially with respect to other companies with operations actually in the U.S., so it appears these stocks will eventually fall out of favor anyway.
And if U.S. GDP up = U.S. Equity Markets up, is there anything else that can be drawn from this relationship?
Does 'U.S. Equity Markets up' lead to 'U.S. GDP up'?
Does 'U.S. GDP down' lead to 'U.S. Equity Markets down'?
Does 'U.S. Equity Markets down' lead to 'U.S. GDP down'?
I think what we have here is a case of correlation =/= causation, either in total or even to a significant degree relative to other causes.
Posted on 4/12/11 at 6:22 pm to acgeaux129
quote:
You're pretty uninformed for acting like such an arrogant prick on the Poli Board.
Can you justify your statement with factual evidence?
Posted on 4/12/11 at 6:23 pm to JPLSU1981
quote:
And also, back to the beginning, population growth is definitely a measurable thing, and it plays a big role in the economy long-term as well as the stock market.
Explain why the historic performance of only the U.S. market and only in the last 140 years is the only historic performance I should consider when predicting the future. You seriously don't think that's a selection bias problem? You would appear to be intentionally choosing the best stock market and saying "look, the stock market is great!"
This post was edited on 4/12/11 at 6:25 pm
Posted on 4/12/11 at 6:37 pm to OohPooPahDoo
![](https://images.tigerdroppings.com/Images/Icons/Iconrolleyes.gif)
And FWIW, you can see GDP projections all the way out to 2050 here... LINK
As well as population estimates out to 2050 here ... LINK
That said, it Seems like you are arguing just for the sake of arguing IMO. Of course I cannot predict the future, but in the context of this discussion I can tell you with unwavering confidence that - if we as a country are still around and functioning - the S&P 500 will be higher in 30 years than it is today. One does not have to be a fortune teller to make that claim with a very high high degree of confidence.
This post was edited on 4/12/11 at 6:50 pm
Posted on 4/12/11 at 6:56 pm to RedStickBR
For sure, and MS makes that point about foreign operations in the report as well.
Posted on 4/12/11 at 6:58 pm to JPLSU1981
I really want to make a comment about US population and demographic changes, but I won't.
Posted on 4/12/11 at 7:05 pm to JPLSU1981
quote:
And FWIW, you can see GDP projections all the way out to 2050 here... LINK
As well as population estimates out to 2050 here ... LINK
Where do they have the stock market estimates?
quote:
Of course I cannot predict the future, but in the context of this discussion I can tell you with unwavering confidence that - if we as a country are still around and functioning - the S&P 500 will be higher in 30 years than it is today.
Its very like its nominal market price will be.
You appear to be arguing that without a doubt its real returns will beat the risk free rate - is that not your claim?
This post was edited on 4/12/11 at 7:06 pm
Posted on 4/12/11 at 9:27 pm to OohPooPahDoo
quote:Please use English on this board.
Its very like its nominal market price will be.
Spidey, you're as annoying as ever.......
Posted on 4/12/11 at 9:31 pm to OohPooPahDoo
quote:
Its very like its nominal market price will be.
You appear to be arguing that without a doubt its real returns will beat the risk free rate - is that not your claim?
![](https://i.imgur.com/u8RMofZ.gif)
WTF does the risk-free rate have to do with anything in the context of this discussion? are you now arguing that treasuries are a better long-term investment than the stock market?
This post was edited on 4/12/11 at 9:36 pm
Posted on 4/12/11 at 9:40 pm to OohPooPahDoo
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