Juggling Dynamite

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 3^rd 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

In 2014 Tesla made all of its technology open source to help other car companies along in their transition to electric vehicles.  Slow on the uptake, most have finally seen the future and announced timelines for delivering their own EV lines at last.  See:  Tesla’s Model 3 has dramatically changed the car industry.  They have a lot of catching up to do.  See:  I just drove the Tesla Model 3 and it changes everything–the entire world will want this car:

“…the Model 3 is going to blow many, many minds. This is easily the most attractive entry-level luxury, all-electric car on the market.

I drove it for no time at all, but I’ve driven pretty much every other all-electric car you can buy, and I can safely say that the Model 3 has no competition.

…there isn’t anybody who’s going to sit in the driver’s seat of this car and not want it, if only briefly. The Model 3 stokes immediate desire, and the lust lingers. That truly changes everything.”

Here was the reveal Friday night.  Here is a direct video link.

Tesla delivers on the first 30 Model 3 orders tonight. An affordable family car, fully electric with best in class acceleration, safety, autonomous tech and sweet style, going 500 km (310 miles) on a single charge, fully re-charged in 30 minutes with free access to the Tesla supercharger network. Canadian deliveries expected in 2018/19. Can’t wait to get ours.

In just 14 years, Tesla has gone from inception to delivery of end to end, fully integrated solar capture/storage/charge/best in world automobiles while haters and skeptics continue to rail.

A truly remarkable accomplishment that has pushed the global auto industry to evolve or die.   Bravo.  See  Tesla delivering the Model 3, here’s everything you need to know:

The $35,000 Model 3 is Tesla’s first sedan targeted at a consumer audience. It’s a big moment for CEO Elon Musk, who wrote in his 2006 “Master Plan” that his ultimate goal for Tesla was to produce an affordable electric car.

“Build sports car. Use that money to build an affordable car. Use that money to build an even more affordable car,” Musk wrote at the time.

The event will kick of mass production of the Model 3, with the ultimate goal of producing 20,000 sedans a month in December.