Monday, June 12, 2017

Bubble
News

U.S. Weeks Away From A Recession According To Latest Loan Data

While many "conventional" indicators of US economic vibrancy and strength have lost their informational and predictive value over the past decade (GDP fluctuates erratically especially in Q1, employment is the lowest this century yet real wage growth is non-existent, inflation remains under the Fed's target despite its $4.5 trillion balance sheet and so on), one indicator has remained a stubbornly fail-safe marker of economic contraction: since the 1960, every time Commercial & Industrial loan balances have declined (or simply stopped growing), whether due to tighter loan supply or declining demand, a recession was already either in progress or would start soon.
 

John P. Hussman, Ph.D.

Presently, the S&P 500 stands at an extreme that is nearly 140% above the level that we would associate with historically-normal 10% long-term expected returns. Clearly, investors view some portion of this valuation premium as “justified” based on the low competing level of interest rates. The problem is that while investors give lip service to the idea that lower interest rates “justify” higher valuations, they appear to ignore that valuations are now so extreme that S&P 500 total returns can be expected to average roughly zero over the coming 12-year period. 
Put simply, investors should expect no total return at all from the S&P 500 for quite a long period ahead. Moreover, based on valuations that have been observed over the completion of every market cycle in history (including cycles prior to 1960, when interest rates were similarly low), 
investors should also expect interim losses on the order of 50-60% over the completion of this market cycle.
 DYI

No comments:

Post a Comment