But the multiplier
varies over the economic cycle — higher during recessions or when short - term rates are near zero, and lower when an economy runs near fully capacity.
Estimates of prospective long - term returns for the S&P 500 reflect our standard valuation methodology, focusing on the relationship between current market prices and earnings, dividends and other fundamentals, adjusted for
variability over the economic cycle (see for example Investment, Speculation, Valuation, and Tinker Bell, The Likely Range of Market Returns in the Coming Decade and Valuing the S&P 500 Using Forward Operating Earnings).
As I've frequently demonstrated, while earnings are essential to generate the long - term stream of cash flows that securities deliver to investors over time, they are poor «sufficient statistics» for that long - term stream because of variations in profit
margins over the economic cycle.
This was higher than the average inflation rate in the preceding decade, of 2 1/2 per cent, but within the official inflation target of 2 — 3 per cent on
average over the economic cycle.
His stated aim was to «maintain stability» and he forecast the current balance of minus # 8 billion would return to a surplus of # 4 billion in 2010, rising to # 18 billion by 2012/13, thus enabling him to meet the Golden Rule and balance the
books over the economic cycle.
He initially followed Conservative spending commitments, a hangover from Labour «s period of opposition when they were keen to neutralise the reputation of being tax raisers, and later governing according to a «golden rule «of borrowing only to
invest over the economic cycle.
As for the chancellor's golden rule, under which a government should only borrow to fund capital
spending over the economic cycle, the shadow chancellor questioned Mr Brown's announcement earlier this year that the cycle began two years than previously thought.
He outlined his thinking on this in an interview with the Guardian in September in which he said: «If there was no growth in the British
economy over an economic cycle we'd be back to the middle ages.»
But the multiplier
varies over the economic cycle — higher during recessions or when short - term rates are near zero, and lower when an economy runs near fully capacity.
Borrowings, within certain limits, are allowed for capital spending (strictly defined) while spending on current goods and services must be
balanced over the economic cycle.
Estimates of prospective long - term returns for the S&P 500 reflect our standard valuation methodology, focusing on the relationship between current market prices and earnings, dividends and other fundamentals, adjusted for
variability over the economic cycle.
Stocks seem reasonable or only slightly elevated «on the basis of forward operating earnings» — despite being strikingly overvalued on measures that account for the variability of profit
margins over the economic cycle (measures that have historically had a much stronger relationship with subsequent returns on the S&P 500 — see Investment, Speculation, Valuation, and Tinker Bell).
This means that
over an economic cycle the economy will grow faster than the government, and government spending will fall as a percentage of GDP.
A Government committed to sharing the proceeds of growth is, by definition, a Government committed to the reduction of taxes, or of borrowing, or both -
over the economic cycle.
But my only caution would be that B - C properties tend to be more volatile in price, % wise,
over the economic cycle (up and down, it appears).