mosullivan wrote:I manage corporate pension plans for a living. I also read a lot and try to understand the world and events around me. I knew there were severe risks in the system yet, I didn't expect the recent selloff to be so swift. I'm trying to fairly value or project the course of the broader US markets, SPX and DJIA for this crash. I want to build a thesis that I can measure and would be welcome to ideas.
I recently heard that If we take the DJIA in 1982 and add annualized real US GDP as a percentage to the DOW, the figure is somewhere between 3500-4000. I am going to confirm this. Does anyone have thoughts on the long term projection or what we will eventually see as fair value ? If there is already a link on this, I apologize for a re post and please point out.
mannfm11 wrote:I worked out a model in 2002 or 2003 based on the data Robert Shiller had posted on the net. If you figure the dividends are going to hold up, the SPX then was worth about 370, which would figure about 450 now. That would give a Dow of about 4000. I believe the US GDP is overstated, but the historical peak of stock price to GDP was 80%. That was the peak in 29 and 66. We have been much higher for years, but I would venture about 60% would be upper range. That would be around 7.2 trillion once the air comes out of the bubble. The SPX is about 70% of the cap value of the market and at 800 it is worth about $7 trillion, so we have about 30% to go to get to reasonable. That would put us in the 560 range, but the market can go much lower toward the 40% range, which would be 4.8 trillion. This puts the SPX in the 420 range. I believe there is an outside chance the Dow goes below 1000 due to big time bear markets of the past. They are now trying the Japan fix and the Japan market recently made a new bear market low in a bear that started in 1990. It made 7000 after being at 39000 at its peak. That is about 17%.
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