What is important to note here is just how far markets can go past the intrinsic value. We are nowhere near a top in this market.
The SP500 (SPY) Intrinsic Value Index is only important when the price of the SP500 SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is below as this level as it represents the price level attractive to Value Investors in past investment cycles. This is because when Value Investors such as Warren Buffett deem stock prices attractive it coincides with the SP500 long term mean earnings trend capitalized by the Prevailing Rate. Inflation is a component of the Prevailing Rate and market lows which are created by the Value Investors incorporates this inflation factor. As the economy expands, inflation is less important in the pricing as many investors bringing fresh capital to the markets are simple trend followers and ignore many common valuation parameters.
Vanguard’s move into PE may change the landscape forever
Private equity has been growing in popularity in recent years as more and more big-name funds and institutional investors dive in. Now even indexing giant Vanguard is out to take a piece of the PE pie. During a panel at the Morningstar Investment Conference this year, Fran Kinniry of Vanguard, John Rekenthaler of Morningstar and Read More
The steady 12mo Trimmed Mean PCE at 1.3% for the past 1yr results in the last 12mos of the index appearing as a smooth rising line vs. the choppiness prior to this period. This is because previous inflation #s were choppy and showing at times considerable swings.
Inflation last 12mos has simply been in a record period of uniformity not seen previously. Interesting to see this.
The Intrinsic Value Index is good for the period when global Value Investors use the US Real GDP + Inflation as the investing benchmark. This works only as long as the US remains a free market with inventors maintaining control of their property rights. If other countries have a faster growth rate and equal legal/political protections then, their Real GDP would begin to compete as the benchmark. I see the US Real GDP being the standard for a long time yet.