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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 things
to realize are are that changes in prevailing interest rates don't change the
value 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 only
several false assumptions were true, such that GDP didn't need cyclical
adjustment, the fraction of short term and the fraction of long term
profits as a fraction of GDP didn't change, that the fraction of economic
activity taking place in public companies did not change, that there were
no non-US companies active in the US, that there were no exports, that
the current account and capital account were balanced, that there was
no 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 go
might 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.

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