The other day I was kinda bored, and decided to play around with some market data, and some public debt data.
If you want to see something scary, try this... it'll take about 30min (or you can just see the results in an image...URL below), but for you excel nuts, it's "fun"
Download two sets of data: historical market closings from yahoo finance (or your fav source), and the federal debt numbers from the treasury departmet (last i checked, they had data up to 2000 avail for bulk download). Create a graph using the market numbers, create a model for this graph and plot the residuals (a linear model has a nice R value). Now plot the residuals and compare the resulting graph to a graph of the national debt.
This is what I came up with: http://www.thealterego.com/market/debt.jpg
One thing worth nothing is that as the debt leveled out in 2000 (and I ran out of debt data points), the stock market began to take a nose dive.... when Bush ramped up debt spending again (not shown in the dataset), the market began to take back off. I know this probably isn't a causal relationship, but it did disturb me a little bit when I saw this.... It makes me wonder if debt spending is what has really been fueling the market since the early 80s.... something I just noticed.... if you derive the slope of the debt curve in 82, debt spending slowed down a bit.... and there was also a corresponding downturn in the market.
Anyone want to offer up any hypothesis? Bad data analysis on my part? I really hope it is since it would seem to indicate that the recent growth in the market is unsustainable, and also that the market is artifically higher than it should be.