Buffett in 1999:Buffett in 2001:Interesting articles.Despite the good insights, I think they also embody the fuzziest reasoning that Mr Buffett has ever espoused (second only to balancing the trade deficit with import permits).The points have been well covered here in the past, but the main thingsto realize are are that changes in prevailing interest rates don't change thevalue of equities, only their short term relative attractiveness to naive investors,nor does GDP to market cap make a predictor of market valuation that's "good enough".Market cap to GDP would make an excellent quick-and-dirty metric if onlyseveral false assumptions were true, such that GDP didn't need cyclicaladjustment, the fraction of short term and the fraction of long termprofits as a fraction of GDP didn't change, that the fraction of economicactivity taking place in public companies did not change, that there wereno non-US companies active in the US, that there were no exports, thatthe current account and capital account were balanced, that there wasno change in net debt, that the currency was reliably steady, and so forth. What determines the value of a given set of equities is the trajectory of future real net earnings of the exact same set of firms, and nothing else.Based on how the world has worked so far, the best guideline to that available is some estimate of the smoothed long run trajectory of those earnings based on some degree of extrapolation from the past trend.Fortunately for forecasters, the long run trend is remarkably stiff.(annual rate of change over 40 year intervals has a standard deviation of only 0.71% since 1870).One's estimate of where on-trend earnings are now and where they will gomight be a little high or a little low, but it's the best that's available,and it has a dozen fewer flaws than market cap to GDP.Definitely worth switching from the one minute calculation to the one hour calculation.Jim
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