Brickell Analytics’ CEO Isaac Gilinski on the Abnormal Growth Rate of the SPX since 1994

When it comes to the market not all growth is good.

Isaac Gilinski
Jul 10, 2019 · 3 min read
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Brickell Analytics’ Isaac Gilinski is warning his clients about another case of excess leverage or easy credit. This time, it involves the balance sheets belonging to three of the world’s largest central banks — namely, the Fed, ECB and BOJ — and their insatiable appetite for lending cheap, easy money.

The normalized annual growth rate of the SPX between 1927 and 1994 was 5%. However, this was before central banks got involved and started expanding their balance sheets. Since then, central banks have participated in the marketplace and the SPX has risen by an abnormal annualized growth rate of 8%. Since 1994, the balance sheet of the Fed has expanded from about $400 billion to around $4 trillion today, and, since 1999, the combined balance sheet of the G3 central banks has gone from a low of $2 trillion to a high of more than $14 trillion today.

If the SPX had continued at a 5% annual growth pace for the last 25 years, or since the 460 level in December 1994, the SPX would reach the approximate 1500 level at the end of 2019, as per the following calculation:

460*(1.05)²⁵ = 1557.72 (fair value of SPX on Dec. 31, 2019)

Instead, the SPX has risen by an annualized rate of 8% since 1994. And hence, according to this metric, a value of 3000 is 100% above the expected fair value of 1500 as per the chart below.

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To align itself back to the normal 5% growth rate of its first 67 years, a case of reverting back to the mean, the SPX would have to drop by 50% from the current 3000 level.

Disclaimer from the Author

Market Watch by Isaac Gilinski

Isaac Gilinski is the founder and owner of Brickell…

Isaac Gilinski

Written by

Isaac Gilinski is the owner of Brickell Analytics, located in Miami, FL.

Market Watch by Isaac Gilinski

Isaac Gilinski is the founder and owner of Brickell Analytics headquartered in Miami, FL. Isaac aims to use this publication to breakdown the complex current market trends.

Isaac Gilinski

Written by

Isaac Gilinski is the owner of Brickell Analytics, located in Miami, FL.

Market Watch by Isaac Gilinski

Isaac Gilinski is the founder and owner of Brickell Analytics headquartered in Miami, FL. Isaac aims to use this publication to breakdown the complex current market trends.

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