22 Troublesome Facts

Tyler Durden's picture

From 720Global

Below are 22 troublesome facts explaining why the herd may, in fact, have it wrong.

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 Reserve 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
  • At $8.6 trillion, corporate debt levels are 30% higher today than at their prior peak in September 2008
  • At 45.3%, the ratio of corporate debt to GDP is at historical highs having recently surpassed levels preceding the last two recessions.
  • Total Government and private debt per household is $329,000 (LINK)
  • Productivity growth (TFP) continues to fall and is quickly approaching zero. It is currently in decline in many developed economies.
  • In 2016, the first baby boomers turned 70 marking an acceleration point for retiring workers and those taking retirement distributions. 10,000 boomers are now retiring daily, which adds pressure to fiscally unstable government programs such as Medicare and Social Security.
  • Massively underfunded state and local pension funds. According to a Hoover Institute study published in May 2017, current pension shortfalls total over $3.8 trillion versus the GASB cited shortfall of $1.3 trillion. (LINK) (LINK)

Federal Reserve

  • Fed Funds have been pinned at or below 1% since 2009. Prior to this time period, it had only been below 1% for one quarter in the 1950’s.
  • The Fed’s balance sheet remains almost six times larger than the pre-crisis levels which serves to distort the price of money and the transmission mechanism between borrowing, lending and Fed policy.
  • Despite having exited “crisis conditions” long ago, Fed policy remains far too accommodative via ultra-low rates and a disfigured balance sheet encouraging vast misallocation of global capital. (LINK)
  • Based on formal published documents from the Federal Reserve regarding policy strategy and goals, the Fed remains incoherent on their objectives and the means used to achieve them. (LINK) (LINK)

Paying soaring valuations in such an environment is, to put it mildly, complacent.

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Max Damage's picture

CAPE is surely much higher than 1990s due to GAAP v NON GAAP

takeaction's picture

So from this article...and the way the markets behave...you are saying....BUY NOW.

Max Damage's picture

Mortgage your house and sell the kids. Netflix on a PE of over 200 is dirt cheap

idea_hamster's picture

Most of these things get solved if the Fed puts IOER back to 0% (where it should be for zero-risk, zero-benefit book entries of M1).

EnglishMajor's picture

The Fed is the old bull sitting on the hill beside the young bull, both looking at the herd of cows...  "No, son, let's walk down and fuck them all."

AlphaSeraph's picture

Amazon at 197 PE and with it's price action over the last 10 or so days, is looking like a blow off top. Insanity. 

idontcare's picture

and BABA is just getting started.

Creative_Destruct's picture

"...Why....The Herd May Have it Wrong"

Actually,  it's clear from history that the herd rarely gets it RIGHT, in the longer run.....

gm_general's picture

In the 90s they used what they called then "pro forma" earnings, now thinly disguised as "adjusted earnings".

GlassHouse101's picture

All boils down to 2 questions.

Will the debt ever be paid back?


Default is the only outcome. End of story.

takeaction's picture

There is a 3rd question...

How long can "They" or "Will They" keep it afloat... ??

It is approaching 10 years so far...

Bryan's picture

Maybe they figure if they keep floating the debt long enough, everyone will just forget about it and they can quietly just push the Del button and cancel it?

Rufus Temblor's picture

That's what they will do.  After the crash the Fed will buy all the US government debt.  At that point, it's as good as deleted since the government will be paying itself interest.

DjangoCat's picture

The car loans and mortgage debt, on the other hand?

LawsofPhysics's picture

Japan has been "keeping it afloat" for 30+ years!!!

ali-ali-al-qomfri's picture





(debt "floats" when we truly know it sinks-everything)

gm_general's picture

How long can the corporations continue to shell out massive amounts of money and debt to buy back their own stocks? Someone should write an article on that.

any_mouse's picture

"How long can the corporations continue to shell out massive amounts of money and debt to buy back their own stocks?"

Until all value has been transferred to the few from the many. Leaving the many with the debt.

Moneychangers and Moneylenders.

Bobrsta's picture

What was the second question?

RedBaron616's picture

Default on the debt Red China holds. That'll hit them right where it hurts.

Consuelo's picture



And you don't think the Chinese have 'war-gamed' that exact scenario up & down, sideways and 50 different ways to Sunday...?    That is precisely what their gold hoard is for, amongst a few others, not all of which are defensive.

MayIMommaDogFace2theBananaPatch's picture

THIS ^^^

The Chinese are not stupid -- they know the debt will be defaulted on.

Creative_Destruct's picture

"Default is the only outcome. End of story."

Either default or inflating it away or monetizing it... probably a combo of those ingredients.

BabaLooey's picture

FACTS..........................do not matter anymore.

It's Perception vs. Reality...to the insane levels never seen before....

c2nnib2l's picture

I've got 22 problems but bitch aint one, hit me ! 

Rick Cerone's picture

Sometimes it's better to stop and watch the herd from a distance.

Then you realize how crazy they really are.

SMC's picture

Predators would starve if the herd had brains.

U4 eee aaa's picture

Definition of insanity:

Watching the Fed print money and do the same thing over and over when the stock market drops and expecting them to do something else

MrSteve's picture

Maybe the economy and the dollar are like the bumblebee, which aeronautical engineering says can't fly, but yet it does fly. You can't use facts to prove a negative assertion because you can't prove a negative, so facts aren't everything. Do these facts "add up" to something? We are free to make our conclusions until we run into zero on ZH's timeline.

Deep Snorkeler's picture

Military Spending is Theft

A 1.2 million man standing army, 

vast super-armadas steaming the seas in circles,

thousands of Abrams tanks baking in the desert,

all defending your rights to payday loans,

Walmart Chinese products and to vote for

genius-level senators.  NASA's Mars colony

welcomes you with loving arms.


Gerry Fletcher's picture

More and more I am reminded of how it felt leading up to October 19, 1987.  Yep, I have perspective.  Wrote an investment strategy letter back then title "Where's the Rest of Me?" from King's Row.

Today, I am reminded of Jefferson Airplane and their song White Rabit (Yellen).

As Yellen raises interest rates, you know she's standing tall.  And if you go chasing rabits, thinking that they will never fall; go see Yellen, when she's ten feet tall.

When the computers on your desk top, tell you where to go.

When logic and proportion have fallen sloppy dead; go see Yellen, when she's very small.

Use your head, before your dead... 

Manipuflation's picture

+1 for the JA ref.  Go ask Alice.  Remember what the Dormouse said.

Manipuflation's picture

The Russian wife wants some goats.

Rufus Temblor's picture

Here's why the herd may have it right: The CBs are calling the shots. The market will implode when they want it to. So, until the Fed and ECB push this granny equity market off a cliff, it will continue to reflect a fundamental disconnect from economic reality.

Fantasy Free Economics's picture

Don't doubt that by using government and the Federal Reserve, the deep state is trying to take a conrolling interest in the world's largest corporations. Central banks will buy enough stock outright to keep the markets elevated. Chances are the market will fall after the economy and political system completely breaks down and not before.


James Quillian

Fantasy Free Economics

Pulp Culture's picture

Redefine debt. Problem solved.

Stormtrooper's picture

Debt is freedom in the new reality.

VWAndy's picture

 Credit is freedom seems more fitting?

Gerry Fletcher's picture

Freedom's just another word for nothin' left to loose...

any_mouse's picture

Or nothing left to lose.

But maybe you mean freedom is no more livestock to let loose.

When you have nothing left to lose then you [let] loose your anger.

VWAndy's picture

 Team fiat is driving the bus kiddies. Until we stop providing our labor for them to keep it rolling it will roll on.

  Its always been about our labor and tptb not paying full price.

GoldHermit's picture

The dirty little secrets 99% of the population has no idea about. If you're in the 1% – you had better buy at least some gold and silver

venturen's picture

why when you can print money or even better mine electro fake money?

lasvegaspersona's picture

Oddly most of the 1% won't buy gold...they just do not see the need.

Expat's picture

Well, you certainly know that a guy like the Mooch will crack down on this shit, rein in the Fed and the Banks, and bring back high-paying jobs to poor and middle-class Americans! 

Gold Dog's picture

I keep raising cash but this mother won't slow down!

Son of Captain Nemo's picture


As I've said many times before. It won't be long now!!!

meditate_vigorously's picture

None of this matters for equities, because they all belong to a handful of controlling interests. There is no market, because there are too few participants.

venturen's picture

troublesome to who? The one percent...I don't think so