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GDP, stock prices, corp profits + money supply

Started by pkamm, 05/11/2003 09:51PM
Posted 05/11/2003 09:51PM Opening Post
Here's an extension of the last chart. Extended the time back to 1965, the heyday (and winding down, in 1968-72) of the previous-generation bull market. Superimposed the broadest measure of national liquidity, the M3 money supply (yellow line).

Used somewhat different multipliers than the last chart to get the means of the lines close to each other on the chart. Several things worthy of note:

1) stock prices are way ahead of corporate profits;
2) corporate profits have lagged a while now and are due for a serious bounce if one looks at the history of the green line; profits are way behind the money supply and at least slightly behind the economy;
3) The late 90's stock super-rally coincides with a sudden run-up of the money supply. All that dough had to go somewhere and it found its way to the stock market. It didn't go to inflation of consumer goods, so it went to a sudden inflation of stock prices.
4) I think this is interesting, just an observation, how much money supply, profits, and stock prices all gyrate all over the chart, but GDP hardly deviates at all.

Attached Image:

pkamm's attachment for post 5928