{"id":480561,"date":"2010-03-27T13:40:00","date_gmt":"2010-03-27T17:40:00","guid":{"rendered":"http:\/\/www.businessinsider.com\/investors-have-been-killed-since-1999-but-corporate-profits-have-doubled-2010-3"},"modified":"2010-03-27T13:40:00","modified_gmt":"2010-03-27T17:40:00","slug":"the-bulls-simply-think-that-when-corporate-profits-double-investors-should-benefit","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/480561","title":{"rendered":"The Bulls Simply Think That When Corporate Profits Double, Investors Should Benefit"},"content":{"rendered":"

Here’s some nice perspective on the market’s perception of value vs. actual underlying business performance. Today’s market thinks that the S&P 500 is worth the same amount as it was in 1998, even though S&P 500 profits have doubled:<\/p>\n

Calafia Beach Pundit (CBP):<\/a><\/p>\n

Note that profits doubled from 1998 to 2009, yet the S&P 500 index today is still lower than it was at the end of 1998. The second chart shows profits as a percent of GDP; note that profits by this measure have almost recovered all the losses that occurred in late 2008. By any standard, the corporate profits picture is very bright.<\/p>\n

\"Chart\"<\/p>\n

Basically, the Price to Earnings (PE) ratio has halved over the period.<\/p>\n

CBP even creates his own measure of PE with the following chart, which basically shows a form of stock market capitalization vs. national income if we understand correctly:<\/p>\n

The chart [below] uses the normalized value of the S&P 500 index as the “P” and after-tax corporate profits from the National Income and Products Accounts as the “E”, in order to calculate a PE ratio… Note that this very simple model of equity valuation correctly identified how cheap stocks were throughout the 1980-1998 period, and correctly flagged the grievous overvaluation of stocks in 2000.<\/p>\n

\"Chart\"<\/p>\n

Add my twitter for more like this: @vincefernando<\/em><\/p>\n

Join the conversation about this story »<\/a><\/p>\n

See Also:<\/b><\/p>\n