Using different deflactors on Indexes
Here I put up a series of deflactors on the Nasdaq 100 Total Return...
I like to use Total Return Indexes becuase they acurately reflect the actual growth of the invested money, rather than simple price indexes... I picked the Nasdaq because as you may have noticed from previous posts the Nasdaq is the absolute winner in terms of performance in the last 15 years... also (unfortunately) I did not find a Total Return option for the S&P500 on Tradingview... actually it's quite bad out there, even spglobal.com doesn't seem to publish those anymore, much less deflated with CPI...
Anyway, moving to the chart here we present a series of deflactors applied to the $NDX Total Return since INCEPTION:
1. Gold
2. CPI
3. CPI+DXY
4. M2 (Fred money stock)
5. REAL M2 (Fred money stock with CPI)
I found the Real M2 the most interesting idea, for in a high monetary inflation environment, Real M2, purges the nominal M2 (total monetary inflation) of its price inflation "component", and comes to a somehwat more balanced deflaction than the original metric (435% performance using M2 Real, vs 275% using the Pure M2 deflactor)
I like to use Total Return Indexes becuase they acurately reflect the actual growth of the invested money, rather than simple price indexes... I picked the Nasdaq because as you may have noticed from previous posts the Nasdaq is the absolute winner in terms of performance in the last 15 years... also (unfortunately) I did not find a Total Return option for the S&P500 on Tradingview... actually it's quite bad out there, even spglobal.com doesn't seem to publish those anymore, much less deflated with CPI...
Anyway, moving to the chart here we present a series of deflactors applied to the $NDX Total Return since INCEPTION:
1. Gold
2. CPI
3. CPI+DXY
4. M2 (Fred money stock)
5. REAL M2 (Fred money stock with CPI)
I found the Real M2 the most interesting idea, for in a high monetary inflation environment, Real M2, purges the nominal M2 (total monetary inflation) of its price inflation "component", and comes to a somehwat more balanced deflaction than the original metric (435% performance using M2 Real, vs 275% using the Pure M2 deflactor)
Comment:
Forgot the famed Buffet Deflactor, usually known as "buffet indicator", (it's actually a deflactor as any of the others above) as you can see this one is far more favourable than the ones based on gold or M2, and more in line with the values shown by the CPI type deflactors, about 670% since inception
