Welcome to Money for the rest of us. This is a personal finance show on money, how it works,

how to invest it, and how to live without worrying about it. I'm your host David Stein. Today is

episode 504. It's titled, Indexing Bubbles and Asset Class Returns still revert to the mean.

This is part three of what has turned out to be a three-part

series primarily on the U.S. stock market, which is at its most expensive level relative to non-U.S.

stocks of all time. We have looked at U.S. stocks back in episode 500, and last week in

episode 503, we've pointed out how the U.S. stock market makes up 66% of the global stock market,

even though the U.S.'s economic output or GDP is only 26% of the world's economic output. We've done

performance attribution where we've looked at the impact of valuation changes on U.S. stock

market outperformance, where four percentage points of the close to 13% annualized return for U.S. stocks over the past decade is because

stocks have gotten more expensive. We'll share a paper by Rob R. Not where he uses the phrase for

that called revaluation, performance that's driven by an asset class getting more expensive or less expensive.

We've looked at positive elements that contributed to a stock market outperformance, such as

U.S.'s deep and attractive financial markets, the nation's venture capital availability for

startups, the higher education

system that attracts top talent from around the world. We've looked at some macroeconomic factors

that have contributed to the outperformance, such as the growing U.S. federal budget deficit

with those elevated cash flows flowing into the economy,

boosting corporate profitability. We've also looked at the earnings overlap, how 40% of earnings

of stocks that comprise the S&P 500 index come from non-U.S. countries, whereas non-U.S. listed companies, those stocks overseas

get 20% of their earnings from the United States. We've looked at Goldman Sachs forecast that

U.S. stocks will return only 3% annualized over the next decade, with the range between negative 1% and 7%.

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