One of the better summaries of fundamental/valuation problems with present investment conditions came last week courtesy of Michael Lebowitz, CFA at 720 Global. Here is a link to the pdf list and below are some of my favorites.
Read ’em and laugh or weep? Depends on your perspective (and current holdings!):
Equity/Bond Valuations
- The S&P 500 Cyclically Adjusted Price to Earnings (CAPE) valuation has only been greater on one occasion, the late 1990s. It is currently on par with levels preceding the Great Depression.
- CAPE valuation, when adjusted for the prevailing economic growth trend, is more overvalued than during the late 1920’s and the late 1990’s. (LINK)
- S&P 500 Price to Sales Ratio is at an all-time high
- Total domestic corporate profits (w/o IVA/CCAdj) have grown at an annualized rate of .097% over the last five years. Prior to this period and since 2000, five year annualized profit growth was 7.95%. (note- period included two recessions) (LINK)
- Over the last ten years, S&P 500 corporations have returned more money to shareholders via share buybacks and dividends than they have earned.
- The top 200 S&P 500 companies have pension shortfalls totaling $382 billion and corporations like GE spent more on share buybacks ($45b) than the size of their entire pension shortfall ($31b) which ranks as the largest in the S&P 500. (LINK)
- Using data back to 1987, the yield to maturity on high-yield (non-investment grade) debt is in the 3rd percentile. Per Prudential as cited in the Wall Street Journal, yields on high-yield debt, adjusted for defaults, are now lower than those of investment grade bonds. Currently, the yield on the Barclays High Yield Index is below the expected default rate.
- Implied equity and U.S. Treasury volatility has been trading at the lowest levels in over 30 years, highlighting historic investor complacency. (LINK)
U.S. Economy
- Real GDP has grown 1.97%, .83% and .69% over the last 3, 5, and 10 years respectively.
- The Federal Rese22rve forecast for real GDP is 2.05% and 1.90% for 2018 and 2019
- Federal Government Debt to GDP is 105.86%, almost 2x higher than year-end 2000. 720Global optimistically forecasts it to be 130% within ten years. (LINK)
- Government deficits are forecast to grow at 3x the rate of GDP through 2027
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