Hi,I am trying to understand how to interpret the following info from a purely economic point of view. Especially, what caused the increase in the value of corporate equities?"In 1980, the total value of all U.S. corporate equities was $1.569 trillion. By 1990, that value had risen to $3.544 trillion, or by 126 percent. But by the end of the first half of 1998, corporate equities had zoomed to $14.556 trillion ? a rise of 311 percent over 1990. Corporate and foreign bonds rose 229 percent in the 1980s and another 122 percent from 1990 to 1998."1. this growth can't be a result of the growth in the US GDP or the wealth of the US economy. So what caused this increase?2. Does that represent the transfer of ownership of assets from the private market to the public market?Thanks.

Ah, the 1990's: Dotcom bubble, irrational exuberance, etcA decade is short and how investors choose to value a given set of assets can easily vary by a factor of 2 or 3.You have to look at very long periods to see some equivalence of exponential growth rates of macro wealthstatistics.

A few other hypotheses for your model:1. Baby Boomers: the demographics of asset accumulation, 2. The shift from defined benefit pensions to defined contribution pensions: all those IRAs & 401ks chasing public investments3. Globalization: more US stocks being valued for increasing overseas profits, not just US economic growth.

Everybody knows how hard market prediction is -- I don't think it well appreciated how hard market postdiction is. There is a joke I can't remember well-enough to look up or make funny. But something along thelines of: a columist who wrote a daily column explaining the market was asked at a party 'How do you everfigure out such a complicated issue?". He answered, 'It's really very easy -- you just write down what themarket did on the left-hand-side, the news of the day on the right-hand-side and insert 'because of' or'in spite of' in between.

Vagaries of the value of $1 in earnings in the S&P500. Part of it is just interest rate fluctuations, but clearly that doesn't explain everything.1982-2000 was a nice run-up, a factor of 9x increase ... source:wikipedia

The US went through many decades where whatever the Baby Boomers did, the country did. The baby boomers jogged? The country jogged. In the 1990's, the baby boomers started investing for retirement. So the nation went mutual fund crazy. I recently saw a chart of stock ownership as a percentage of household wealth. It was the highest of the century in 2000, and still pretty high recently, above anything past except maybe a moment in the 1960's.The economy can go up and down, but the baby boomers created a fad of public securitization, and a demand to hold stock. They did everything else as a mob, they prefer to invest and save as a mob.I was there in the 1990's. The law that public equity investments always go up, and the S&P 500 gains every year, was right up there with gravity. In 1997, I predicted stocks would start going down as the great baby-boomer die-off began. I wrote an article in the San Francisco Examiner, on the anniversary of the "Summer of Love" predicting an inverse summer of love in the stock market.If you weren't there or don't remember, you cannot appreciate how much a basically sideways S&P flies in the face of the laws of nature, as they were widely understood in the summer of 1997.

I would suggest the following1. economic growth 2. a fall in nominal interest rates3. a lowering of the "risk premium" demanded by equity investors as some of the "macro" risks are being managed better - see prior point

Summer Of Love, Decades Of TheoriesAugust 23, 1997 - San Francisco Examiner"Unfortunately, the dream became a nightmare"

QuoteOriginally posted by: daveangelI would suggest the following1. economic growth 2. a fall in nominal interest rates3. a lowering of the "risk premium" demanded by equity investors as some of the "macro" risks are being managed better - see prior point4. A focus on shareholder value driven by the competitive advantage concept, and the emergence of corporate raiders and leveraged buyout firms5. The Reagan tax cuts6. The shift from an industrial to an information & services economy that began in the 1970s7. Killing off inflation through monetarism8. A shift from bonds to stocks9. The Black Scholes option pricing model

10. 1987 crash - complex portfolio models11. 1987 - A. Greenspan becomes Fed Chairman12. late 80s/early 90s - Savings and Loans crisis13. 1994 bond rout from unexpected Fed rate increase14. 1997 Asian financial crisis15. 1998 Russian financial crisis

QuoteOriginally posted by: musicgold1Corporate and foreign bonds rose 229 percent in the 1980s and another 122 percent from 1990 to 1998." Rise in total notional??QuoteOriginally posted by: musicgold11. this growth can't be a result of the growth in the US GDP or the wealth of the US economy. So what caused this increase?Labor productivity growthQuoteOriginally posted by: musicgold12. Does that represent the transfer of ownership of assets from the private market to the public market? Another way of framing it is that the benefits of improved productivity flowed to the owners of capital, not labor.

NYT Opinion - The Biology of RiskSee chart caption - How the Fed Tried to Rein in Volatility - The Fed reduced short-term rate volatility from the mid '90s on, the effect however was that crashes in the S&P 500 were longer and more acute.

you will have to look at the technology aspect. the era you are pointing to is the period of exponential technological advancement. not only increasing productivity but the ease of financial transactions access to money and financial markets. the sophistication of the financial system brought with it a range of complicated products developed on top of cash instruments. so the period was a boom in the financial markets not in sense of how much the stock market grew but the access to financial products and markets and awareness in general public. this was probably the time when the popularity of business majors grew and degrees like mba got trendy.

16. Schumpeter's waves - falling communications costs in the 20th century Q4 essentially laying the foundation for the globalization of production and capital markets - new business models, digital media, online retail, offshore manufacturing, outsourcing etc17. the shift from bank corporate lending to corporate bond issuance in capital markets, and the growth in the high yield bond market