Wednesday, April 02, 2008
Tuesday, April 01, 2008
Panic overstated?
40 years on from the Summer of Love. Here's a chart I made to show the capital value of the Dow at the end of each calendar year.
I used Yahoo! for Dow valuations (ex dividends); rebased them so that Dec 1967 = 100; and adjusted for cumulative inflation as per Inflation Data's calculator.
Theoretically, someone investing a sum in the Dow at the end of 1967 would have had to wait 28 years to see it return to its original (inflation-adjusted) value.
But over the whole 40 years, the averaged return is 2.175% per annum compounded, which is very close to the 2.2% p.a. real capital growth on the S&P 500 (1871-2006) illustrated in the previous post.
These long views suggest that the Dow's recent 12-year zoom is merely a kind of rebalancing. In this context, it's interesting to see that as of September 2007, the price-earnings ratio of the S&P 500 is not far off its average over the period since 1871. The fall in stock valuations since then should have brought the p/e ratio even closer to the norm.
By way of comparison, here below is the result of a similar exercise for the FTSE, though I have been unable to go back further than 1970. Again, it's the close at end December each year up to 2007, adjusted in this case for RPI. FTSE stats from Wren Research, RPI from here and (for the latest 2 years) here.
The overall shape looks fairly similar to that of the Dow over the same period. Average capital gain over 37 years is c. 1.6% p.a. compounded.
Dow & S&P500 adjusted for inflation - importance of dividends
Source: The Big Picture
Source: Inflation Data
Monday, March 31, 2008
Saturday, March 29, 2008
Thursday, March 27, 2008
Recent newspage updates
From "The Big Picture" blogDumping of US treasuries imminent, starting with Korea, says Burnick
Don Boudreaux interviewed (by a colleague) on his liberal econ book "Globalization"
"Not until total debt comes down to a realistic number can a real recovery take place. If debt is to be destroyed to that magnitude the deflation will be monstrous."
Mish: "Germany fears global meltdown"
Hutchinson: new financial system by 2013
Derivatives: Banking capital "insufficient to handle even one per cent of potential losses."
"Matt" on US M3, the money supply, inflation
California realtors report house prices collapsing (htp: Drudge Report, LA Times)
Skills shortgage hampering US job repatriation, says AT&T chief (htp: Drudge Report)
KPMG criticised for allegedly poor auditing of failed US mortgage firm (htp: Drudge Report)
2008 US durable goods report: semiconductors down sharply since New Year (htp: Karl Denninger)
Monty Guild: stock rally if mortgage bond market stabilises; invest in non-leveraged areas
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