Strategy (revised)

Strategy was revised May 11 to reflect a bear wave trend in bonds.

For more information on the strategy methodology, please read:
“A Dynamic Asset Allocation Approach to Investing II”

Where are we

An apropos quote for today’s asset allocation environment.

It’s only when the tide goes out that you learn who has been swimming naked.

Warren Buffet

Stock Returns, P/Es, and GDP

Despite the general contention that the economy and the stock market are inexorably connected, the facts get in the way of confirming common wisdom.

This chart presents the average stock market return and average GDP growth by decade and by secular bull/bear market cycle. Economic growth is not the primary driver of stock market returns; instead, returns are driven primarily by a cycle In the P/E ratio.

Although economic growth does increase the denominator in the P/E (earnings), actual returns are generally the result of trends in the P/E ratio.