Interesting chart from Art laffer, the father of Supply Side Economics and a regular guest on Kudlow.


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Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

38 Responses to “Real Versus Nominal SPX Returns”

  1. Jay Weinstein says:

    For many many years, I have told people to sell stocks on my birthday.

    It was yesterday! LOL

    Good luck to all…

  2. Aaron says:

    How is inflation calculated in this chart? Forgive if this an econ 101 question, I’m not an economist or trader – just a curious observer.

  3. Pool Shark says:

    I have seen this chart a number of times over the last few months. It is my understanding that it is adjusted by using the CPI.

    How bad would it look if the real rate of inflation were used instead?

    It just goes to show that all the perma-bulls who point to nominal DOW & S&P points as signs of their “bull market” need to factor in inflation and currency values.

    btw, just in case nobody noticed, the US$ broke below 80 within the last hour.

  4. David says:

    So I should buy TIPs then, where the real “yield” is > 2.2%.

  5. Pool Shark says:

    btw, here’s a link to an excellent article on the subject from earlier this year:

  6. Estragon says:

    Pool Shark – “btw, just in case nobody noticed, the US$ broke below 80 within the last hour”

    I thought the party line was that a lower USD was going to juice US corp earnings to the moon. Following that line of logic, shouldn’t we expect to be infinitely wealthy as the USD approaches zero?

    Seriously though, if the USD weakens through USDJPY 121-ish, things could get fugly.

  7. Stuart says:

    Bernanke’s going to get caught holding the bag. Way to go Al.

  8. Sven says:

    So why doesn’t he show this chart to Larry “Keeping America Indebted” Kudlow and explain to him that this is really the greatest story never told.

  9. EJS says:

    Isn’t the US Dollar the real problem that could take down everything, not subprime, bridge loans or any of that?

  10. GerryL says:

    Kudlow stated on CNBC that the only inflationary indicator worth looking at is chip prices. I am planning to replace my breakfast cereal with chips. Sort of like Cap’n Crunch except not as sweet.

    Maybe Kudlow is using chips as an inflationary indicator because it is one of the few things he can find that is declining in price. Just a guess.

  11. Sven says:

    I’d never call Kudlow stupid, but that remark certainly sounds stupid. How did he justify that?

  12. Sven says:

    Re: EJSs post…I have to say it seems like there are A LOT of people counting on LBOs/PE to propel this market forward (i.e., Ken Fisher and his greatest contraction of stock supply in history thesis). If corp financing freezes they are going to have to look around for other reasons.

    The falling dollar is a concern but on the way down you get increased tourism and more exports :)

  13. GerryL says:

    Kudlow isnt stupid just manipulative. Barry mentioned inflation and that was Kudlow’s rebuttal. He stated this earlier this week when Barry was on the show. I wish I had the transcript.

  14. Fred says:

    Pool Shark…I do not see Bucky breaking 80 on this chart:

  15. Sven says:

    I think he was talking about Sept Dollar futures, not the USD index.

  16. Ironman says:

    From January 1966 to June 2007, the S&P 500 averaged the following annualized rates of return:

    Without Dividend Reinvestment:
    Nominal: 6.96%
    Real (Inflation Adjusted):10.39%

    With Dividend Reinvestment:
    Nominal: 2.32%
    Real (Inflation Adjusted): 5.74%

    Going by CPI-U (the Consumer Price Index for all Urban consumers), inflation averaged 4.64% in this period. The real rates of return provided above reflect this adjustment.

    These values (and really, any from January 1871 through June 2007) are available through this tool.

    The annualized average long term rate of inflation in the U.S. (at least, since 1913) is 3.29%.

  17. EJS says:

    He was probably talking about the fed’s trade weighted index. A much truer indicator.

  18. Michael C. says:

    I think the market is scared to death of Bush temporarily handing over the Presidency on Saturday to Cheney.

    Truly frightening and requires maximum hedging at the very least.

  19. jay says:

    Is it me or is everyone utterly bearish on this market? Where are these bulls everyone is referring to?

  20. Joe says:

    “I think the market is scared to death of Bush temporarily handing over the Presidency on Saturday to Cheney”.

    Cheney should be in control that would end the terrorism problem.

  21. Fred says:

    Put buyers are coming to the rescue (again) – 1.39 at 1:00.


  22. GerryL says:

    I am not sure the market is worried about Bush having a medical procedure. A colonoscopy can only help him.

  23. Valdan says:

    “I think the market is scared to death of Bush temporarily handing over the Presidency on Saturday to Cheney.”

    What is this about? I haven’t heard anything.

  24. Fred says:

    Saturday Night Live will have a field day with “a hole” jokes…lol

  25. Jim says:

    Does your chart include dividends? Otherwise, it’s not accurate.

  26. wally says:

    An interesting comparison would be the real rate of return on housing over the years (thought that would have to include adjustment for mortgage leveraging and also transactions costs of buying and selling).

  27. Ironman says:


    The S&P historical returns in my earlier comment should have read:

    NOMINAL (Not Inflation-Adjusted)
    Without Reinvested Dividends: 6.96%
    With Reinvested Dividends: 10.39%

    REAL (Inflation-Adjusted):
    Without Reinvested Dividends: 2.32%
    With Reinvested Dividends: 5.74%

    My apologies for any confusion!

  28. Groty says:

    Is this intra-day reversal driven by the cash market or is it the usual mystery buyer gunning the futes?

  29. Fred says:

    S&P 1450 and BKX 112 are keys…

    Battle on!

  30. showmethemoney says:

    As others have mentioned, I think you’re missing the dividends. Another possibility is you are using a non-standard measure of inflation.

  31. michael schumacher says:

    do not know about the SPY( what reversed it) however the volumes on both the SPY and Q’s tell me this is not an accumulation day…….LOL


  32. Tia says:


    You know, of course, that Bush left Cheney officially in charge during his absence. Have a nice day.

  33. GerryL says:


    Yes, I am aware that Cheney will be in charge for a few hours. I dont think he can do much damage during that time.

    My comment was an attempt at humor based upon the nature of a colonoscopy. Having had one I know there is a process that you go through for a day before the procedure.

  34. semper fubar says:

    Maybe we’ll invade Iran tomorrw while Bush is having a hose stuck up his butt. That’d be good for the markets, I bet.

  35. Bob says:

    Re USD, I suggest watch EURJPY. It correlates perfectly with the DAX lately, reflecting carry trade. Big move down today.

  36. VJ says:

    During Friday’s ‘Lehrer News Hour’, David Leonhardt, an economic columnist for the New York Times, stated that the S&P 500 is down 18% from where it was in 2000 in inflation-adjusted dollars:


  37. Ron says:

    I’ve reposted my son’s CDS Primer from February on my site today. It’s not necessarily the best (and certainly not the only recap)…but it’s brief and puts the debacle in perspective…unlike Professor Bernanke.