The

VOL. 1, No. 19

Real Returns Report

Non-Consensus, Data-Driven Analysis
MAY 29, 2012

Contents Update Value Barometer Equities & Bonds Value Barometer Metals

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Contents Value Barometer - Energy License/ Disclaimer

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Update

Alex Dumortier, CFA

alex.dumortier@gmail.com linkedin.com/in/alexdumortier

There is no commentary this week due to the Memorial Day weekend; however, I'd like to point out that I've added copper to the Value Barometer, which brings the number of series for which I am publishing statistics to 16. In spite of its dreadful performance over the last several months, the red metal has produced an extraordinary annualized real return of 14% over the past ten years if that isn't evidence of a commodities super-cycle, I don't know what is! Enjoy the abbreviated week. AD 1

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The Real Returns Report

Value Barometer
U.S. Equities
Current value (05/25) Broad Market/ Large-caps Aggregate U.S. equities, Equity q ratio S&P 500, Equity q ratio S&P 500, P/E10 Small-caps Small-caps: Russell 2000, P/E10 28.9 2003 - 2012 27% 30.1 30.6 5.0 0.95 1945 2011 84% 0.66 0.71 0.26 Series length Percentile rank Geometric average Arithmetic average Standard deviation

0.70

1871 2012

49%

0.64

0.69

0.25

20.5

1881 2012

78%

15.2

16.4

6.6

Source: Federal Reserve Board of Governors, Robert Shiller, Russell Indexes, Standard & Poor's, The Real Returns Report

U.S. Fixed Income

Current value (05/24) High-Yield BofA ML High Yield Master II Index, OAS U.S. High Yield Bonds, Trailing 10yr return 662 bps 1996 2012 66% 538 bps 600 bps 306 bps Series length Percentile rank Geometric average Arithmetic average Standard deviation

6.1%

1936 2012

75%

3.6%

3.7%

3.4%

Source: BofA Merrill Lynch, Federal Reserve Bank of St. Louis, Ibbotson Associates, The Real Returns Report

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The Real Returns Report

Value Barometer (cont.)

Current value (05/25)

Series length

Percentile rank

Geometric average

Arithmetic average

Standard deviation

Precious metals
GOLD Real price, USD $1,574.6 1970 2012 96% $634.8 $705.5 $336.8

Real price, CHF Trailing 10-yr real return, USD Trailing 10-yr real return, CHF SILVER Real price, USD Trailing 10-yr real return, USD

CHF 1,506.6

1970 2012

95%

CHF 767.0

CHF 830.8

CHF 354.3

14.3%

1979 2012

89%

1.5%

1.8%

8.1%

10.8%

1979 2012

92%

0.5%

0.8%

6.9%

$28.2

1970 2012

92%

$12.4

$14.8

$11.2

16.3%

1980 2012

94%

(0.6%)

(0.1%)

9.0%

Industrial metals
COPPER Real price, USD Trailing 10-yr real return, USD $7,739.0 1960 2012 82% $4,810.7 $5,346.9 $2,487.3

14.0%

1970 2012

96%

(0.6%)

(0.4%)

6.6%

Source: Kitco, LME, The Real Returns Report, The World Bank

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May 28, 2012

The Real Returns Report

Value Barometer (cont.)

Current value (05/23)

Series length

Percentile rank

Geometric average

Arithmetic average

Standard deviation

Energy
U.S. NATURAL GAS Real price, USD Trailing 10-yr real return, USD $2.60 1960 2012 39% $2.85 $3.58 $2.46

(5.0%)

1970 2012

11%

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 on data from the Federal Reserve's Flow of Funds report. However, it's possible to calculate the ratio mid-quarter, as I have done, by adjusting the market value to reflect changes in equity market indexes. Here, I used the Wilshire 5000 full 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 uses the average of the prior ten years' earnings, on an inflation adjusted basis, as its earnings input. The rationale behind this is the observation that earnings are too volatile on a year-to-year basis to provide reliable information on a company's (or a market's) true earnings power. By using a ten-year average, the P/E10 smoothes out earnings volatility and allows investors to better identify legitimate changes in risk premiums. The figures in this table are derived from Professor Shiller's data (available from his web page), which include series of monthly average prices for the S&P 500/ S&P Composite Index.

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The Real Returns Report

The Real Returns Report by Alex Dumortier is licensed under a Creative Commons AttributionNonCommercial-NoDerivs 3.0 Unported License. Permissions beyond the scope of this license may be available at longrunreturns.blogspot.com.

Disclaimer: This research is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. This research does not constitute a personal recommendation. The price and value of the investments referred to in this research and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors.

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