HH 22 Troublesome Facts -

HH 22 Troublesome Facts

Jul 26, 2017Jeremy ParkinsonFinance0

Below are 22 realities to explain why 720Global does not recommend following the herd.

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 3rdpercentile. 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