Indicator Series Vol. 8: Market Cap to GDP

The so-called Buffett Indicator, aka Market Capitalization to GDP, is a useful metric for devising whether publicly listed equities are becoming frothy in relation to total output.

fredgraph (9).png

According to the graph above, this indicator has peaked and as of it’s last reading, has fallen. A keen eye is not necessary to see what happens next. This is one of the few data points that is flying in the face of the slow and steady recovery in macro-land at the moment. Unlike the turn of the century, we do not have an excess of valueless companies IPOing in the name of the world wide web. Unlike 2008, we do not seem to have reckless lending and borrowing practices propping up a particular market.

Unlike today, these two past recessions had little to no Central Bank intervention. Food for thought.


Source: St. Louis Fed