Saturday, September 4, 2010

S&P 500 relative to money supply (M2)

This is just a different way of looking at the big picture. From the '60s to 1982 the ratio dropped (secular bear market) while from '82 to 2000 the ratio climbed (secular bull market). And of course there is the decline from 2000 to last year.

These days the ratio is right around the 50 year average (600 month geomean). Roughly, the stock market would have to fall by about half, or the money supply double, or some combination of the two, to move the ratio back down to the lows of the early '80s.