From The Chart Store, I always find this chart terribly interesting:

 

Click to enlarge:

Category: Economy, Markets

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.

17 Responses to “Market Capitalization as a % of GDP”

  1. biscuits says:

    So we have been irrationally exuberant for quite awhile. Bernanke makes us so happy.

  2. John Rothe says:

    I’d love to see the same chart, but using Japan. Ahem Chart Store…

  3. CharlesII says:

    One would expect to see some degree of upward slope as a society makes the transition from having most of its wealth as hard assets such as property to one where intellectual assets are more important. It’s certainly improbable that the market is overvalued by 100%, but it’s certainly possible that it’s overvalued by 30%.

    Especially if one puts on-balance sheet the major liability the US holds, i.e, its corrupt political system.

  4. Westbound says:

    I’ve never understood the allure of this data point.

    In addition to what Charles II said, surely a large portion of this represent the changing market share of public companies vs private companies. For example, when did stock options start becoming a major piece of compensation, thereby (generally) requiring public companies for monetization? In the old days, any Silicon Valley type company with low capital needs, would never have gone public.

  5. kek says:

    seems misleading as American business is doing a larger percentage of business overseas vs. times past.
    GDP measures all final goods & services produced by workers & capital located in the US, regardless of ownership.

    If US corporations produce goods outside of the US, it does not count in GDP, but it certainlt counts in their market cap, (KO & YUM are good examples). Approx 53% of S & P 500 profits are from overseas, vs. 30% just ten years ago.

    But then again, don’t let the facts get in the way of a good rant.

  6. hack says:

    @kek

    You get the same chart if you use GNP.

  7. hack says:

    Edit – Above should read:

    “substantially the same chart”

  8. biscuits says:

    Interesting look at Facebook’s market cap, from Marketwatch’s Mark Hulbert:

    http://www.marketwatch.com/story/facebooks-stock-should-trade-for-1380-2012-05-25

  9. kek says:

    Could this chart point that service economies have a higher market cap to GDP Ratio. Similar to P/S ratio, think tech vs. smoke stack/low skill manufacturing economy.

  10. cognos says:

    So, a rich, successful investor decided to be “committed” to this chart…

    Sold short equity indices in 1996.

    Now runs a small internet charting operation?

  11. Frilton Miedman says:

    Compare, side by side with charts of both consumer and government debt, then factor the “Minsky moment:”….just cut entitlements spending it this is a fantastic short opportunity – for those in the know.

  12. DeDude says:

    I am not sure it makes much sense to presume a constant ratio. As companies tend to get bigger you will have a much smaller part of them owned privately and would expect a steady increase in cap/GDP ratio. Also as baby boomers get into retirement range you would expect a larger amount of savings in stocks. Finally as more wealth is concentrated into the top 1% more wealth will be placed in stocks. I would skip the 20′ies and 30′ies and 00′s and run an increasing line through the rest of it. That would suggest that we are a little high, but not extremely above what should be expected.

  13. jonas says:

    Business is so much more international. A big % of the US stock market cap is in the value of their international business, not just US business. That’s not captured by US GDP.

  14. Syd says:

    Even just looking at a thirty year chart of the S&P 500 by itself, it seems like something about the market has changed. Since around 1995 it looks like the Grand Tetons. What accounts for this, monetary policy? Increased leverage? The fact that FIRE is a much bigger part of the US economy? Is the pre-1995 period still applicable?

  15. wally says:

    How’s come some charts merit the infamous ‘return to mean’ line and others do not? That chart might be rather interesting with, say, a 10-year mean line.

  16. markp says:

    So, if AAPL were to go private the market would automatically become cheap again?

  17. emaij says:

    All we need to do is to double our GDP. The easiest way to do this will be by growing the largest sector of our economy – the financial sector. Given the great minds in finance, it should be no problem to develop derivative products and markets that will make this possible.