- 12 Dicembre 2018
- by Blogger
Stocks are now falling. Worldwide, about $5 trillion has already been knocked off stock values. The S&P 500 is about 10% below its top in September. And the FAANG stocks are down about 25% from their highs. Still, they’ve got a long way to go. Warren Buffett’s favorite yardstick for valuing stocks measures the relationship of total market capitalization (the value of all stocks added together) to GDP. The ratio should be well below 100%. Stocks cannot be worth much more than the GDP of the country that supports them. But this ratio is now as high as it’s ever been – it’s about even with the top of the great bubble market of 1999. Stocks today are equal to about 150% of GDP. The Dow would have to fall by nearly 50% to get back to normal.