Value Investing

FRED on Buffett’s favored market measure: Total Market Value-to-GNP

By Greenbackd

Here’s the St Louis Fed’s FRED on the Warren Buffett’s favored market measure, total market capitalization-to-GNP.

FRED Graph

According to the FRED data, the January 2000 TTM/GNP peak was 158 percent, and the April/July 2007 TTM/GNP peak was 114 percent. The average for the full period – 1949 to October 2012 – is 69 percent. The last time the market traded at a below-average ratio was Q1 2009.

Compare this to the Q3 2012 ratio – unfortunately the most recent point – at 100 percent. If we assume ~1 percent GNP growth in Q4 2012 and Q1 2013 (the long-run CAGR is about 1 percent per quarter), and the market has rallied around 10 percent, the ratio now stands at ~107 percent, which is around 40 percent over the long-run mean (since 1949).