Hi!
Hier ist ein interessanter Artikel, der den Bärenmarkt 1974 mit dem heutigen anhand der Marktkapitalisierung vergleicht. Zwei Methoden der Berechnung werden vorgestellt, beide kommen zu dem Schluss, dass der Markt damals deutlich unterbewertet war im Gegensatz zu heute.
Zudem hatten die Marktteilnehmer noch 1929ff. im Hinterkopf und waren nicht bereit diese Risiken einzugehen.
schöne Grüsse
Cosa
<font size="4">1974 vs. 2001 Bear Markets -- What's the Difference? </font>
October 19, 2001
The bear market in stocks commencing in 1973:Q1 and running through 1974:Q4 was the worst in postwar history. Total market capitalization fell by about 48% during that two-year period. The current bear market, which commenced in 2000:Q2 and was still in force in the quarter just ended, is running apace of the 1973-74 debacle. Total market cap is down 29% in the six quarters since the stock market's 2000:Q1 peak. Similarly, in the six quarters ended 1974:Q2, total market cap had fallen 30%. Of course there are many differences between the 1974 bear market and the current one. But one of the most important differences to investors looking ahead is that the stock market appeared to be significantly undervalued in 1974 whereas it appears to still be significantly overvalued in 2001.
Just as there is more than one way to skin a cat, there is more than one way to value the stock market. In this commentary I'm going to use two valuation methods -- one being touted by Art Laffer, who currently is bullish on American stocks, and one being touted by Andrew Smithers (in case you couldn't guess, a Brit) who currently is bearish on American stocks. Although the relevant data are not yet available to apply these two valuation methods to the current level of stock market capitalization, both of these methods suggested that the US stock market was still significantly overvalued through the second quarter of this year. In contrast, both of these methods suggested that the US stock market was significantly undervalued in 1974. A powerful rally followed the bear market of 1974, with total market cap rising 43% in the first half of 1975. But with the stock market apparently overvalued through the second quarter of this year, can we expect a strong stock market rally soon a la 1975?
Let's first discuss the Laffer method of stock market valuation. Theoretically, the value of a stock today is the discounted value of the companies' future earnings. Well, we don't know what future earnings will be even though stock analysts want us to believe that they do. Moreover, there is now considerable latitude in how companies define earnings. Laffer implicitly assumes that tomorrow's earnings will be the same as today's. Moreover, he uses the economic profits series estimated by the Bureau of Economic Analysis. This profit series is based on corporate profit reports to the IRS. So, if nothing else, profits are calculated on a consistent basis across corporations. The profit series Laffer uses is for all US corporations. In effect, he divides each quarterly profit amount by the 10-year Treasury note yield to get capitalized economic profits, or theoretical total market capitalization. Laffer indexes his theoretical market cap series and compares its indexed level with that of the S&P 500 stock market index. The only problem I have with Laffer's methodology is that he is capitalizing the profits of the universe of US corporations and then comparing this theoretical market cap with that of a subset of US corporations -- the top 500 by market cap. What I did instead, was compare theoretical total market cap with actual total market cap. The results of this are in Chart 1.
Chart 1
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Notice that there was a wide gap between theoretical market cap and actual market cap between 1953 and 1979. In other words, stocks appeared to be grossly undervalued during this time period. Why do you think that might have been? How about risk aversion? A lot of the folks investing in those days remembered that it took the stock market 25 years to get back to its 1929 highs. Investors of the 1953-79 period remembered the"new era" of the late 1920s. They understood that stock prices could go down and stay down for a long time. But by the time the 1980s rolled around, the enlightened generation, baby boomers, had bought their homes and now were ready to invest in some financial assets. Although, as mentioned above, the 1973-74 bear market in stocks was grisly, it was short. Moreover, baby boomers knew that the Great Depression in stocks was the result of inappropriate government policies pursued in the 1930s. This could never happen again when they would be running the show. So, the baby boomers, risk seekers, eschewed bonds in favor of stocks. Although the theoretical level of market cap lay above the actual level starting around 1980, the gap was much smaller than prior to 1980.<br />
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But in 1998, something unknown in the postwar period occurred. As shown in Chart 2, the theoretical market cap level actually dipped below that of actual market cap! The stock market for the first time in the postwar period was overvalued in terms of the Laffer methodology. The excess of actual market cap to theoretical market cap reached its zenith in the first quarter of 2000, which also turned out to be the peak in actual market cap. Although much smaller than in 2000:Q1, there still existed an excess in actual market cap to theoretical in 2000:Q2, the latest period in which complete data are available. We know that actual market cap fell further in the third quarter. We also know that the 10-year Treasury yield fell in the third quarter. Both of these elements would argue for a less overvalued stock market. But economic corporate profits also are thought to have fallen, which would work in the direction of depressing theoretical market cap. Regardless of whether theoretical market cap moved closer to actual market cap, it seems safe to assume that the degree of stock market undervaluation that existed even from 1980 through 1997 has not been regained. Also, it is safe to assume that the today there is nowhere the degree of stock market undervaluation that existed in the bear market of 1973-74 (see Chart 1).<br />
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Chart 2<br />
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Now let's discuss Smithers' method of stock market valuation. He compares actual stock market capitalization to the corporate sector's book-value net worth. James Tobin, a Nobel Prize winner in economics, first talked about this ratio, but in a different context. It is popularly know as Tobin's Q. To digress a bit, Tobin was interested in this ratio as it related to capital spending. If the corporate sector's market cap exceeded its book-value net worth, i.e., Q was greater than 100 in percentage terms, Tobin reckoned that corporations ought to issue more stocks and bonds, using the proceeds to fund additional spending on plant and equipment. In other words, it was more economical to increase the scale of one's business via capital spending than to do so by taking over an existing corporation through the purchase of its stock. Conversely, if Q were less than 100, it would be more economical to increase scale by purchasing an existing corporation. In sum, if Q were greater than 100, we would expect to see a faster pace of capital spending. Smithers, however, is not interested in Q as it relates to capital spending but rather as it relates to stock market capitalization. To Smithers, a Q value greater than 100 is an indication that stocks are overvalued because the corporation is worth more than its liquidation value.
If Q data exist for all corporations, I don't know where to find it. But I do know where to find it for a subset of all corporations -- nonfinancial ones. The source is the Federal Reserve's flow-of-funds data. Plotted in Chart 3 is Q, or market cap for nonfinancial corporations as a percent of their book-value net worth. According to Smithers, when Q is above 100, stocks are overvalued. Notice that prior to 1995:Q2, market cap to net worth had only once been above 100 -- in 1968:Q4. Since 1995:Q1, market value to net worth has not fallen below 100 and got as high as 183.0 at the stock market's peak, 2000:Q1. For several years prior to 2000, Smithers kept warning that the stock market was wildly over valued based on the Q ratio. But he was roundly dismissed by the"new era" crowd. Ironically enough, in December of 1996, when Q's value was 120.0, Fed Chairman Greenspan coined the term irrational exuberance. He, too, was figuratively booed off the stage by the new era crowd. Smithers stuck to his guns. Greenspan switched sides, joining the new era"Taliban." More's the pity. Latest available data, 2001:Q2, puts market cap to net worth at 129.0. Although almost assuredly, Q fell in the third quarter of this year, it is doubtful it fell below 100. Thus, while stocks are not as overvalued as they were, according to the Q valuation methodology, they still are very much overvalued by this measure. Finally, note that Q stood at a value of 33.3 in the last quarter of 1974, the final quarter of that bear market. In contrast to today, stocks were extremely undervalued in 1974.
Chart 3
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In conclusion, I have presented two alternative measures of stock market valuation, both of which suggest that equities, in the aggregate, were still"expensive" in the second quarter of this year. In the most severe bear market of the postwar period to date, 1973-74, stocks were"cheap" according to the two valuation methods presented here. Although valuations most likely improved in the third quarter, by no means did they approach the undervaluation of 1974. This is not to say that the stock market cannot rally in the months ahead. It does suggest, however, that until valuations improve substantially, even historical average stock market returns may be a"challenging" objective to achieve.
Paul Kasriel
Director of Economic Research
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