Political  Calculations

Since August 2011, stock prices have been behaving in a very orderly manner.

By that, we mean that the relationship between average stock prices and their underlying dividends per share have been very closely coupled during the period from August 2011 to the present. So much so that a simple power law may be used to describe the relationship between the two, with a normal bell-curve distribution describing the variation of each month's data since with respect to the mean trend power curve.

Speaking of which, we've been playing around with how to automate our ability to visualize that pattern, which we've shown in the chart below, where we've shown the average for April 2012 through 20 April 2012. Although those lines may look like they're straight, they're really curves that are bending upward (with just eight data points, things still look linear, even though they're very much not so!)

S&P 500 Average Monthly Index Value vs Trailing Year Dividends per Share, August 2011 through April 2012 (as of 20 April 2012)

In the chart above, the formula in the top left corner describes the power law relationship between average stock prices for the S&P 500 and their underlying dividends per share. Meanwhile, the statistical equilibrium/control chart-inspired lines represent the number of standard deviations (shown in the bottom right corner) either above or below the S&P 500's current trajectory and describe the typical variation we see in stock prices with respect to their average trajectory, at least while the market continues to behave in such an orderly manner.

Political Calculations

Political Calculations is a site that develops, applies and presents both established and cutting edge theory to the topics of investing, business and economics.

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