Recent Blog Posts
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The Times' Rorshach Geithner Story
Apr 27 20099:04am EDT -
Sinking Animal Spirits
Apr 27 20098:04am EDT -
Counter-cyclical Urban Policy
Apr 26 200910:04am EDT -
Be Your Own Counterfeiter
Apr 26 20099:04am EDT -
Being Tim Geithner
Apr 25 200912:04pm EDT -
Notes From a Press Conference Naif
Apr 25 20099:04am EDT -
What Good is the News?
Apr 25 20098:04am EDT -
Stressful Enough
Apr 24 20092:04pm EDT -
Not Regretting the Pound
Apr 24 20091:04pm EDT -
Introducing the New Ford Squeeze
Apr 24 20099:04am EDT -
Non-Economic Questions of the Day
Apr 24 20099:04am EDT -
The Stress Test Blind Alley
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Happy Hour
Apr 23 20099:04pm EDT -
Recovery Without Rebalancing
Apr 23 20096:04pm EDT -
The Shape of Your Recession
Apr 23 20095:04pm EDT
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Stock Market Datapoint of the Day
Investors in stock have not done very well over the last decade. The S&P 500 rose by a cumulative total of 52.6 percent from December 1997 to December 2007. After adjusting for inflation, the increase was 17.3 percent, which translates into real growth of just 1.6 percent a year. Add in a dividend yield of approximately the same size and we get that the average real return on stocks over the last decade has been 3.2 percent, a bit lower than the yield available on inflation indexed government bonds at the time.
If the absolute return on stocks is lower than the absolute return on TIPS, then the risk-adjusted return on stocks has surely been much lower. I have to admit that this result surprises me, because (a) although there were signs of irrational exuberance at the end of 1997, the greatest excesses of the dot-com bubble had yet to materialize; and (b) one would think that the multinational companies which comprise the S&P 500 would naturally have risen quite a lot in value as the dollar declined, thanks to their international income.
Of course with hindsight the best investment at the end of 1997 was undoubtedly real estate.
