The Unintended Consequences Of Greenspan’s "Frankenstein" Markets
By Tyler Durden
A better way at looking at equity valuations, which does not entail a flawed GDP concept, is to compare it with other asset classes. Our next chart depict US farmland and residential real estate compared to the S&P 500. The idea is that these all reflect somewhat the productive capacity of society and should therefore yield more or less the same. And throughout history they did. While they clearly diverged now and then, such as the equity boom of the 1960s, farmland bubble in the 1970s and housing in the 2000s, the massive divergence in equity valuations starting with Greenspan’s reigns stands out.
And this is not because farmand productivity suddenly fell. On the contrary, from the 1940s output per acre has steadily risen. This is central bankers herding investors into stocks by altering the risk/reward balance. 
As a side note, with the latest bout of monetary madness farmland prices has indeed reached a new bubble; a bubble so severe that it makes the folly of the 1970s look like good old fashioned mid-western prudence. Turns out there were some unintended consequences of printing trillions of currency units after all.
As we have shown here before, the S&P500 is extremely dependent on what happens around FOMC days.
Excluding trading on the day of and after an FOMC decision shaves more than 40 per cent off the index.
Source: The Unintended Consequences Of Greenspan’s "Frankenstein" Markets
