In the late 1800’s and early 1900’s - as telephone, electricity, and the automobile were emerging - the US equity market cap relative to GDP appears to have been 2-3 times higher than it is today. We need to verify this difficult-to-get data but, if true, I have a hypothesis. https://twitter.com/elonmusk/status/1379258463386284038

Telephone, electricity, and the automobile were the three major technology-enabled platforms during the 50 years that ended in the Roaring Twenties. Technology-enabled platforms are deflationary thanks to learning curves, or Wright’s Law. The Gold Standard also was in force.

As deflation pressured an increasingly difficult-to-measure nominal GDP (the denominator), exponential unit growth and rapid productivity gains increased the quality of earnings while low interest rates boosted their capitalization (the numerator).

The technologically-enabled innovation evolving today dwarfs that of the late 1800s/early 1900s: genomic sequencing, robotics, energy storage, artificial intelligence, and blockchain technology. Moreover, Bitcoin could be today’s “gold standard”, increasing purchasing power!

Good Deflation: The deflationary forces associated with the five major platforms evolving today could be much more powerful than those caused by telephone, electricity, and the automobile.

Bad Deflation: “Creative destruction” could compound the deflation. Since the tech and telecom bust, many companies have catered to short-term oriented shareholders, leveraging balance sheets to repurchase shares and pay dividends while neglecting to invest enough in innovation.

Deflation should lower the velocity of money, a mirror image of the seventies. If consumers and businesses expect prices to fall, many will defer spending. As a result, the rapid growth in global money is unlikely to unleash generalized inflation, except perhaps in asset prices.

“This time is different” are dangerous words in forecasting markets. Most forecasters use post World War II history as their guide. On that basis, never has the equity market been higher relative to GDP. In the late 1800’s, however, it seems to have been 2-3 times higher.

The source for the ratio of the US equity market cap to GDP is http://Longtermtrends.net , a website dedicated to the Buffet indicator. @ARKInvest will research this metric pre-WWII to assess its validity.