S&P500 is well above the long-term trend. This is due to low inflation


“Davidson” submits:

I have used a valuation band for the SP500 on Shiller’s data which trended higher with the trend of EPS, i.e. 6.1% annually since 1933 when FDIC placed bank speculation risk on speculators not on savers. 1933 is the beginning of the rise of Middle Class wealth.

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Note that the SP500 is well above the long-term trend. This is due to low inflation, 1.7% which has persisted in a down trend since 1982. Govt spending has been less inflationary once we got past the Great Society impact of the 1970s &  Great Inflation when Volcker raised rates to ~18% in 1982.

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Low inflation prices EPS higher and we are seeing the lowest consistent inflation ever recorded.

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Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a RealMoney.com contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.