Many thanks for this Allin,
I think this may raise issues of the role of econometrics in economics,
which is a large topic! But just briefly, your model doesn't appear to
include a term for tcm10y. I would be curious to see what results you got
from a comparison of this long term bond yield to the implied dividend
yield of a broad portfolio of stocks (such as the S&P500) plus the implied
average share price appreciation. One manifestation of a bubble is that the
sum of these latter greatly exceeded the first up till April 2000, but the
vast majority was concentrated in share price appreciation, rather than the
dividend yield--which fell to less than 1/4 of the bond yield at the time.
As a result, for shares to continue returning a greater amount than bonds,
one of two things had to happen: either dividend yields had to rise
dramatically, or share prices had to continue appreciating at a dramatic
rate. The latter of course stopped happening in April 2000.
Cheers,
Steve
At 11:20 PM 4/24/01 Tuesday, you wrote:
>On Tue, 24 Apr 2001, Steve Keen wrote:
>
> > I'm also curious as to how Allin's results were arrived at.
> >
> > How do you reconcile them with the fact that price to earnings ratios have
> > reached historic highs during the last 2 years?:
> >
> > DJIA P/E ratio: 22.7; earnings $466.06 - dividend yield < 1.7%
> > S&P 500 P/E ratio: 24.5; earnings $50.81 - dividend yield < 1.3%
> > (data for April 23 2001 from fiendbear.com)
>
>My impression is that while the market was considerably higher at the
>end of the 1990s than it had been for several years, it was not out of
>line with the longer picture over the postwar years. The ratio to
>corporate profits was similar to the figure towards the end of the
>1950s, and the late 1960s.
>
>Since people may well have doubts about the model I estimated,
>here are the (relatively) raw data.
>
>cpatax = Corporate Profits After Tax with IVA and CC Adjustment;
> Billions of dollars, SAAR
>tcm10y = Bond rate: 10-year Treasury Constant Maturity
>sp14 = DJ Industrial Average Close (av'ge of monthly values)
>pvprof = 100*cpatax/tcm10y
>djratio = sp14/pvprof
>
> cpatax tcm10y sp14 pvprof djratio
>
> 1959.1 29.2 3.99 599.7 731.8 0.81949
> 1959.2 31.9 4.26 637.1 748.8 0.85076
> 1959.3 29.1 4.50 657.0 646.7 1.01598
> 1959.4 29.9 4.58 661.7 652.8 1.01362
> 1960.1 31.4 4.49 623.1 699.3 0.89099
> 1960.2 29.4 4.26 622.6 690.1 0.90213
> 1960.3 29.5 3.83 607.6 770.2 0.78885
> 1960.4 28.4 3.89 597.8 730.1 0.81886
> 1961.1 27.6 3.79 662.3 728.2 0.90946
> 1961.2 30.5 3.79 686.5 804.7 0.85302
> 1961.3 31.4 3.98 708.8 788.9 0.89845
> 1961.4 33.2 3.97 718.9 836.3 0.85961
> 1962.1 37.1 4.02 705.0 922.9 0.76394
> 1962.2 36.6 3.87 613.3 945.7 0.64852
> 1962.3 37.2 3.99 595.4 932.3 0.63858
> 1962.4 39.4 3.90 630.4 1010.3 0.62400
> 1963.1 39.5 3.89 676.1 1015.4 0.66583
> 1963.2 41.3 3.96 717.2 1042.9 0.68768
> 1963.3 41.9 4.03 719.2 1039.7 0.69171
> 1963.4 42.9 4.12 756.2 1041.3 0.72626
> 1964.1 46.8 4.18 799.6 1119.6 0.71415
> 1964.2 46.7 4.20 821.0 1111.9 0.73835
> 1964.3 47.2 4.19 851.7 1126.5 0.75604
> 1964.4 46.7 4.17 874.2 1119.9 0.78060
> 1965.1 53.3 4.20 898.5 1269.0 0.70801
> 1965.2 54.5 4.21 902.8 1294.5 0.69737
> 1965.3 55.2 4.25 901.8 1298.8 0.69432
> 1965.4 57.3 4.47 958.9 1281.9 0.74807
> 1966.1 59.5 4.77 953.4 1247.4 0.76432
> 1966.2 58.2 4.78 896.0 1217.6 0.73587
> 1966.3 56.9 5.14 803.3 1107.0 0.72568
> 1966.4 58.7 5.00 794.8 1174.0 0.67700
> 1967.1 56.8 4.58 851.8 1240.2 0.68681
> 1967.2 55.9 4.82 870.0 1159.8 0.75016
> 1967.3 56.9 5.25 910.7 1083.8 0.84030
> 1967.4 58.2 5.64 886.9 1031.9 0.85944
> 1968.1 54.9 5.61 845.6 978.6 0.86405
> 1968.2 57.8 5.74 903.0 1007.0 0.89675
> 1968.3 57.8 5.46 904.9 1058.6 0.85483
> 1968.4 58.1 5.77 960.4 1006.9 0.95382
> 1969.1 57.2 6.18 928.9 925.6 1.00363
> 1969.2 55.3 6.35 920.3 870.9 1.05680
> 1969.3 54.1 6.86 821.8 788.6 1.04202
> 1969.4 49.5 7.30 822.9 678.1 1.21357
> 1970.1 46.2 7.37 769.1 626.9 1.22690
> 1970.2 49.6 7.71 706.7 643.3 1.09847
> 1970.3 48.4 7.46 753.1 648.8 1.16082
> 1970.4 44.9 6.85 796.2 655.5 1.21469
> 1971.1 54.4 6.02 883.9 903.7 0.97814
> 1971.2 55.6 6.25 913.6 889.6 1.02694
> 1971.3 58.4 6.48 881.2 901.2 0.97780
> 1971.4 61.2 5.89 853.5 1039.0 0.82142
> 1972.1 64.5 6.03 923.7 1069.7 0.86352
> 1972.2 65.3 6.14 948.0 1063.5 0.89135
> 1972.3 69.2 6.29 947.2 1100.2 0.86099
> 1972.4 72.5 6.37 997.9 1138.1 0.87678
> 1973.1 76.3 6.60 968.4 1156.1 0.83765
> 1973.2 72.5 6.81 904.8 1064.6 0.84992
> 1973.3 74.6 7.21 920.4 1034.7 0.88953
> 1973.4 75.2 6.75 876.6 1114.1 0.78684
> 1974.1 69.8 7.05 854.3 990.1 0.86284
> 1974.2 65.6 7.54 813.8 870.0 0.93537
> 1974.3 56.6 7.96 681.3 711.1 0.95815
> 1974.4 58.7 7.67 633.5 765.3 0.82772
> 1975.1 67.9 7.54 737.0 900.5 0.81841
> 1975.2 77.4 8.05 844.2 961.5 0.87801
> 1975.3 88.8 8.30 820.2 1069.9 0.76666
> 1975.4 94.3 8.06 849.7 1170.0 0.72625
> 1976.1 99.1 7.75 982.5 1278.7 0.76833
> 1976.2 94.6 7.77 991.6 1217.5 0.81448
> 1976.3 95.4 7.73 982.8 1234.2 0.79636
> 1976.4 96.3 7.19 972.3 1339.4 0.72592
> 1977.1 101.2 7.35 936.6 1376.9 0.68026
> 1977.2 117.1 7.37 914.0 1588.9 0.57523
> 1977.3 130.2 7.36 866.2 1769.0 0.48967
> 1977.4 123.1 7.60 826.4 1619.7 0.51022
> 1978.1 120.8 8.01 756.5 1508.1 0.50160
> 1978.2 134.1 8.32 832.3 1611.8 0.51639
> 1978.3 137.3 8.49 868.3 1617.2 0.53692
> 1978.4 142.7 8.82 798.8 1617.9 0.49374
> 1979.1 135.4 9.11 836.7 1486.3 0.56297
> 1979.2 135.2 9.11 839.7 1484.1 0.56582
> 1979.3 134.2 9.10 870.9 1474.7 0.59053
> 1979.4 133.3 10.45 825.6 1275.6 0.64723
> 1980.1 120.2 11.99 841.6 1002.5 0.83950
> 1980.2 108.8 10.48 845.3 1038.2 0.81422
> 1980.3 108.8 10.95 933.4 993.6 0.93944
> 1980.4 117.0 12.42 960.6 942.0 1.01971
> 1981.1 129.9 12.96 975.3 1002.3 0.97302
> 1981.2 132.4 13.75 988.8 962.9 1.02692
> 1981.3 148.0 14.85 894.6 996.6 0.89762
> 1981.4 141.0 14.09 872.2 1000.7 0.87158
> 1982.1 130.7 14.29 839.4 914.6 0.91779
> 1982.2 141.3 13.93 826.6 1014.4 0.81490
> 1982.3 141.2 13.12 868.7 1076.2 0.80721
> 1982.4 139.4 10.67 1025.8 1306.5 0.78519
> 1983.1 159.2 10.56 1106.1 1507.6 0.73369
> 1983.2 174.7 10.54 1216.1 1657.5 0.73368
> 1983.3 182.3 11.63 1216.2 1567.5 0.77587
> 1983.4 191.4 11.69 1253.3 1637.3 0.76545
> 1984.1 204.8 11.94 1180.0 1715.2 0.68797
> 1984.2 215.6 13.20 1136.0 1633.3 0.69553
> 1984.3 218.2 12.87 1182.1 1695.4 0.69725
> 1984.4 224.3 11.74 1202.6 1910.6 0.62946
> 1985.1 219.9 11.58 1279.2 1899.0 0.67363
> 1985.2 225.5 10.81 1303.0 2086.0 0.62463
> 1985.3 236.0 10.34 1336.7 2282.4 0.58566
> 1985.4 222.3 9.76 1464.4 2277.7 0.64293
> 1986.1 209.8 8.56 1699.6 2450.9 0.69344
> 1986.2 199.3 7.60 1851.1 2622.4 0.70590
> 1986.3 189.1 7.31 1813.7 2586.9 0.70113
> 1986.4 178.9 7.26 1896.0 2464.2 0.76942
> 1987.1 197.6 7.19 2228.9 2748.3 0.81102
> 1987.2 216.3 8.34 2332.2 2593.5 0.89923
> 1987.3 229.6 8.88 2610.5 2585.6 1.00962
> 1987.4 234.5 9.12 1922.0 2571.3 0.74748
> 1988.1 254.9 8.42 2006.0 3027.3 0.66262
> 1988.2 265.0 8.91 2068.4 2974.2 0.69544
> 1988.3 268.3 9.10 2091.1 2948.4 0.70924
> 1988.4 283.3 8.96 2143.9 3161.8 0.67807
> 1989.1 253.4 9.21 2298.1 2751.4 0.83526
> 1989.2 253.5 8.77 2446.4 2890.5 0.84634
> 1989.3 257.1 8.11 2696.9 3170.2 0.85072
> 1989.4 252.9 7.91 2701.5 3197.2 0.84496
> 1990.1 269.5 8.42 2641.7 3200.7 0.82534
> 1990.2 285.9 8.68 2804.7 3293.8 0.85152
> 1990.3 253.9 8.70 2657.4 2918.4 0.91056
> 1990.4 262.6 8.40 2545.2 3126.2 0.81416
> 1991.1 303.1 8.02 2844.2 3779.3 0.75256
> 1991.2 296.6 8.13 2940.7 3648.2 0.80607
> 1991.3 292.2 7.94 3028.4 3680.1 0.82291
> 1991.4 298.7 7.35 3044.2 4063.9 0.74907
> 1992.1 325.4 7.30 3242.2 4457.5 0.72735
> 1992.2 318.4 7.38 3358.2 4314.4 0.77837
> 1992.3 272.6 6.62 3307.6 4117.8 0.80325
> 1992.4 323.3 6.74 3277.5 4796.7 0.68328
> 1993.1 321.4 6.28 3372.0 5117.8 0.65887
> 1993.2 338.1 5.99 3490.4 5644.4 0.61838
> 1993.3 346.2 5.62 3582.0 6160.1 0.58148
> 1993.4 374.8 5.61 3706.2 6680.9 0.55475
> 1994.1 333.4 6.07 3815.5 5492.6 0.69466
> 1994.2 386.4 7.08 3688.4 5457.6 0.67582
> 1994.3 404.1 7.33 3840.4 5513.0 0.69661
> 1994.4 422.0 7.84 3827.2 5382.7 0.71103
> 1995.1 427.0 7.48 4004.2 5708.6 0.70144
> 1995.2 446.7 6.62 4447.5 6747.7 0.65911
> 1995.3 474.1 6.32 4702.7 7501.6 0.62690
> 1995.4 483.4 5.89 4982.4 8207.1 0.60708
> 1996.1 517.0 5.91 5489.3 8747.9 0.62750
> 1996.2 523.3 6.72 5622.3 7787.2 0.72199
> 1996.3 531.1 6.78 5675.8 7833.3 0.72457
> 1996.4 550.2 6.34 6333.1 8678.2 0.72977
> 1997.1 571.5 6.56 6758.1 8711.9 0.77573
> 1997.2 593.7 6.70 7337.6 8861.2 0.82806
> 1997.3 613.1 6.24 7930.1 9825.3 0.80711
> 1997.4 607.9 5.91 7724.5 10286.0 0.75098
> 1998.1 580.4 5.59 8417.3 10382.8 0.81070
> 1998.2 568.2 5.60 8971.8 10146.4 0.88423
> 1998.3 569.0 5.20 8088.3 10942.3 0.73918
> 1998.4 564.1 4.67 8963.4 12079.2 0.74205
> 1999.1 604.3 4.98 9483.9 12134.5 0.78156
> 1999.2 585.9 5.54 10773.2 10575.8 1.01866
> 1999.3 587.9 5.88 10607.2 9998.3 1.06090
> 1999.4 622.3 6.14 11034.9 10135.2 1.08878
> 2000.1 650.0 6.48 10663.6 10030.9 1.06308
> 2000.2 671.5 6.18 10568.0 10865.7 0.97260
> 2000.3 679.7 5.89 10796.0 11539.9 0.93554
> 2000.4 647.0 5.57 10724.5 11615.8 0.92327
>
>The model I estimated was in "error correction" form:
>
>ld_sp14(t) = beta_0 + beta_1 ld_pvprof(t)
> + beta_2(l_pvprof(t-1) - l_sp14(t-1)) + u_t
>
>where "ld_" denotes a log-difference (first difference of log) and
>"l_" denotes a natural log. The implied long-run proportion is
>exp(beta_0/beta_2), which I found to be 0.906.
>
>Allin.
Dr. Steve Keen
Senior Lecturer
Economics & Finance
Campbelltown, Building 11 Room 30,
School of Economics and Finance
UNIVERSITY WESTERN SYDNEY
LOCKED BAG 1797
PENRITH SOUTH DC NSW 1797
Australia
s.keen@uws.edu.au 61 2 4620-3016 Fax 61 2 4626-6683
Home 02 9558-8018 Mobile 0409 716 088
Home Page: http://bus.uws.edu.au/steve-keen/
http://www.debunking-economics.com
http://www.stevekeen.net
This archive was generated by hypermail 2b30 : Wed May 02 2001 - 00:00:06 EDT