I think I understand now where the disconnect lies. The chart uses the capitalization of PUBLICly traded companies and divides it by the GDP of the entire nation. Well, in a nation, only a portion of the companies that contribute to GDP are public. Think of all the laudromats, fast food franchises, small hotels and motels you drive by. They all contribute to the GDP but PRIVATEly owned.
The ration on on the chart is therefore NOT a P/E ratio. To arrive at such, they should divide not by the GDP of U.S. but by the sum of all the earnings of NYSE+NASDAQ.
Make sense?
Thank you for your patience in clarifying that. Now I have to rethink my understanding of that chart. What it says is that market capitalization dramatically increased from ‘82 until the collapse of the dot com bubble in 2000. It still has not returned to its mean of 60%. The question I have is, has the mean moved? What has changed between ‘82 and now?
Candidate ideas: 1) the Reagan tax cuts; 2) the increased productivity due to PC’s; 3) the beginning of IRA’s (increased demand for market securities);
Any ideas?