US Companies Are More Indebted, More Leveraged, Less Profitable, And More Richly Valued Than Ever


Once again I start with a warning: A recession is eventually coming and a financial crisis with it. There is a real potential for it to come soon, although serious tax reform could delay it.

But sooner or later, the pressures of too much government debt and too many government promises, plus growth that is continually grinding slower, will break out into a recession.

There is always another recession.

You can’t run your life and business as if you expect one to happen tomorrow, but you can make contingency plans. With each passing day, recession gets closer, but that’s no reason to be fearful if you’re prepared.

Troublesome Facts

The industrious Michael Lebowitz of 720Global performed an invaluable service last week by assembling “22 Troublesome Facts” behind his reluctance to follow the bullish herd.

Most have helpful source links, too. Here’s a short recap:

  • The S&P 500 cyclically adjusted price-to-earnings (CAPE) valuation has only been higher on one occasion, in the late 1990s. It is currently on par with levels preceding the Great Depression.
  • Total domestic corporate profits (w/o IVA/CCAdj) have grown at an annualized rate of just .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.)
  • Over the last 10 years, S&P 500 corporations have returned more money to shareholders via share buybacks and dividends than they have earned.
  • 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.

In short, US corporations are simultaneously more indebted, less profitable, and more highly valued than they have been in a long time.

Plus, they are intentionally making themselves more leveraged by distributing cash as dividends and buying back shares instead of saving or investing that cash.

Yet investors cannot buy their shares fast enough. Maybe this will end well… but it’s hard to imagine how.


GUS100CORRINA Osmium Tue, 08/08/2017 - 16:49 Permalink

US Companies Are More Indebted, More Leveraged, Less Profitable, And More Richly Valued Than EverMy response: I have continued to monitor the equity markets for years now with continued amazement. Everyone has thrown sanity out the window and are now living in a fantasy land. The trader who placed the $262,000,000 bet on increaing volatility is going to make a fortune.So many great articles have been published on ZH that discuss RISK and how to prepare. Unfortunately, VERY FEW ARE LISTENING.Reminds me of the movie TOWERING INFERNO where the fireman went up to the promenade room and advised everyone to get down below the fire floor. Of course, the advice was the met with skepticism and the phrase was uttered "NOT IN THIS BUILDING". The end result was not good. A majority of the people got burned up and died. This is probably where this "market business" is headed because everyone is in denial just like in the movie TOWERING INFERNO.

In reply to by Osmium

LindseyNarrate… (not verified) Tue, 08/08/2017 - 16:34 Permalink

This is a very serious question: Have you all considered the possibility that, GIVEN EVERYTHING THAT IS HAPPENING, LITERALLY, TODAY, ALONE, that we are living in what can only be described as "The End Times"? I know that people hate that term, as do I, but there ARE maniacs whom believe that by destroying the world, (((they))) can, THEN, re-create the new world, in (((their))) image, and the survivors will, then, worship (((them))) as God-incarnate, walking-upon-Earth. This is terrifying, but it is, actually, what I have come-to-believe as THE MACROCOSMIC REALITY. Lindsey

Sudden Debt Tue, 08/08/2017 - 16:51 Permalink

Today I was at a company that is building a new office worth 14 million euro's... and they have a turnover of 9 million a year...If you shee shit like that you wonder why their staff isn't applying for a new job every single day... 

LawsofPhysics Tue, 08/08/2017 - 17:36 Permalink

Well, they (and us taxpayers) would not be in debt if we could print our own money RISK-FREE (thanks to bailouts), WITHOUT COLLATERAL (no gold standard), like the central bankers and financiers... See the real problem yet motherfucker?

The Proletariat Tue, 08/08/2017 - 17:38 Permalink

US Companies Are More Indebted, More Leveraged, Less Profitable, And More Richly Valued Than Ever............What's the problem?  Signed, Zimbabwe Shalom Bernanke. BITCHEZ!!!!!!!!!!!!!!!!!!!!!!!!!!

sinbad2 Tue, 08/08/2017 - 17:54 Permalink

The US was in a similar position prior to, and in the early stages of WWII, but once the US got rolling, it stole everything of value, in every country it liberated. By the end of the war, the US had most of the worlds gold.The US has always made its money from theft, even the advances the US made in aircraft design and rocketry, was because of the slaves it took at the end of WWII, killing and stealing is the American way.The US is preparing to do it again, it's the only thing it can do, it knows no other way.

Silver Savior Tue, 08/08/2017 - 20:04 Permalink

I just wonder when I should quit my job and cash out my 500 hours of vacation. I fear even though I work for one of the largest companies in the world and everything is seemingly fine they can go bankrupt on a moment's notice and I will lose everything. I think about stuff like this all the time. I have no faith in this economy. I should probably just do a job hop and take it before it's gone. Should be able to buy a nice stack of silver bars.

yerfej Tue, 08/08/2017 - 21:36 Permalink

Out and patience, it will implode with a previously unknown ferocity, everything will be for sale and chaos will rein in the streets.

ElTerco Tue, 08/08/2017 - 22:18 Permalink

I'm surprised the author thinks tax reform will materially delay the inevitable. Why does the author assume management will not do more of the same once they get more money in their hands?