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The Real Returns Report, June 18 2012

The Real Returns Report, June 18 2012

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PE10, Shiller PE, q ratio, asset allocation, multi-asset, global macro, valuation, value, equities, bonds
PE10, Shiller PE, q ratio, asset allocation, multi-asset, global macro, valuation, value, equities, bonds

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Published by: The Real Returns Report on Jun 18, 2012
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The
Real Returns
Report
Sometimes Contrarian, Always Data-Driven
 
VOL. 1, No. 22
Alex Dumortier, CFA
JUNE 18, 2012
Value Barometer
U.S. Equities
Currentvalue(06/15)SerieslengthPercentilerankGeometricaverageArithmeticaverageStandarddeviation
 
Broad Market/ Large-capsS&P 500, Equity qratio
0.72 1871
 –
2012 52% 0.64 0.69 0.25
S&P 500, P/E10
21.0 1881
 –
2012 80% 15.2 16.4 6.6
S&P 500, 10-yr realreturn
2.5% 1936
 –
2012 26% 6.7% 6.9% 5.6%
Equity VolatilityVIX Index
21.1 1990 - 2012 58% 19.3 20.5 7.8Source: Federal Reserve Board of Governors, Robert Shiller, Russell Indexes, Standard & Poor's, The RealReturns Report
Foreign Equities
Currentvalue(06/15)SerieslengthPercentilerankGeometricaverageArithmeticaverageStandarddeviationHang Seng Index(Hong Kong), P/E10
14.3 1996
 –
2012 14% 18.6 19.1 4.4Source: Hang Seng Indexes, Census and Statistics Department of the Government of the Hong Kong SAR
 
 
June 18, 2012
 
The Real Returns Report
 
Page | 2
U.S. Fixed Income
Currentvalue(06/14)SerieslengthPercentilerankGeometricaverageArithmeticaverageStandarddeviationHigh-YieldBofA ML High YieldMaster II Index,OAS
685 bps 1996
 –
2012 67% 538 bps 601 bps 305 bps
U.S. High YieldBonds, 10-yr realreturn
6.4% 1936
 –
2012 78% 3.6% 3.7% 3.4%Source: BofA Merrill Lynch, Federal Reserve Bank of St. Louis, Ibbotson Associates, The Real Returns Report
Precious metals
GoldReal price
$1,627.3 1970
 –
2012 97% $632.5 $703.5 $341.2
Real price
CHF 1,545.9 1970
 –
2012 96% CHF 766.9 CHF 830.8 CHF 355.0
10-yr real return,USD
14.8% 1979
 –
2012 89% 1.6% 1.9% 8.2%
10-yr real return,CHF
11.2% 1979
 –
2012 93% 0.6% 0.8% 6.9%
SilverReal price
$28.7 1970
 –
2012 92% $12.3 $14.8 $11.1
10-yr real return
16.5% 1980
 –
2012 94% (0.5%) (0.1%) 9.0%
Industrial metals
CopperReal price
$7,376.3 1960
 –
2012 79% $4,792.1 $5,325.7 $2,473.6
10-yr real return
13.5% 1970
 –
2012 95% (0.6%) (0.4%) 6.6%Source: LME, The Real Returns Report, The World Gold Council
 
June 18, 2012
 
The Real Returns Report
 
Page | 3
Energy
Currentvalue(06/13)SerieslengthPercentilerankGeometricaverageArithmeticaverageStandarddeviationU.S. Natural GasReal price
$2.18 1960
 –
2012 32% $2.83 $3.56 $2.45
10-yr real return
(5.6%) 1970
 –
2012 9% 4.1% 4.3% 7.8%Source: U.S. Energy Information Administration, The Real Returns Report, The World Bank
Notes
Equity q = Market value / Net worth (estimated at market prices)This is a variation on Tobin's q. When it is calculated over all U.S. equities, it is a quarterly series since it depends ondata from the Federal Reserve's Flow of Funds report. However, it's possible to calculate the ratio mid-quarter, as Ihave done, by adjusting the market value to reflect changes in equity market indexes. Here, I used the Wilshire 5000full capitalization index, which is the broadest measure of U.S. equities' market capitalization and performance.P/E10: Also known as the cyclically-adjusted PE (CAPE) or "Shiller PE" after Robert Shiller of Yale. The P/E10 usesthe average of the prior ten years' earnings,
on an inflation adjusted basis 
, as its earnings input. The rationale behindthis is the observation that earnings are too volatile on a year-to-year basis to provide reliable information on acompany's (or a market's) true earnings power. By using a ten-year average, the P/E10 smoothes out earningsvolatility and allows investors to better identify legitimate changes in risk premiums. The figures in this table arederived from Professor Shiller's data (available from his web page), which include series of monthly average pricesfor the S&P 500/ S&P Composite Index.

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