Monday, January 21, 2008

Stock Slump (fg)

European and U.S. shares fell sharply today; this is the biggest one-day slide since the Sept. 11, 2001 attacks. In the media you hear the voices of panic, break-downs and recession risks. To shed light on it, I just plotted a graph containing the evolution of the US S&P Composite, its real price in terms of the year 1871 and the devolpments of the Consumer Price Index (data from Rob Shiller's Irrational Exuberance database) As you can all see, there is a massive blow-up of nominal stock performances since the aftermath of Bretton-Woods when the Gold Standard was abolished in favour the fixed-exchange rate system. The interpretation is up to you!