With US equity markets sitting at all-time highs, the masses are looking to join the investment fray. Needless to say, it would be prudent for potential investors to note that risk levels are also sitting at all-time highs.
With that in mind, here are 22 troublesome investing facts that are hard to look past. They have been divided into three categories (Valuations, Economy, Federal Reserve) for a clearer understanding of the inherent risks that exist:
- The S&P 500 Cyclically Adjusted Price to Earnings (CAPE) valuation currently sits at levels only seen one other time in history: the late 1990s. Additionally, the current level is eerily similar to the levels seen just prior to the stock market crash of 1929.
- Based on current economic growth patterns, the CAPE is overvalued more than any other time in history.
- Total domestic corporate profits have grown at an annualized rate of only .097.
- The S&P 500 Price to Sales Ratio currently sits at an all-time high.
- S&P Corporations have earned less in the last 10 years than they have returned to shareholders via stock buybacks and dividends.
- According to a Prudential analyst, the current yields on high-yield debt, adjusted for defaults, are lower than those found with investment grade bonds.
- Using the top 200 S&P 500 corporations, the current shortfall on pension payouts sit at an alarming $382 billion with GE leading the way.
- Investor complacency is currently highlighted by Implied equity and U.S. Treasury volatility, which both sit at 30 years lows.
- GDP has only grown by 1.97%, .83% and .69% over the last 3, 5, and 10 years respectively.
- The Feds estimate GDP will only grow by about 2% in both 2018 and 2019.
- Government debt currently sits at 105.85% of GDP. Preferable levels would be around 90%.
- Debt is expected to grow 3X the rate of GDP over the next 10 years.
- Corporate debt levels ($8.6 trillion) have grown by 30% over the last 9 years.
- Private debt + government debt sits at $329,000 per US household.
- Worker productivity is falling to near zero levels.
- The ratio of corporate debt to GDP (45.3%) currently exceeds that of the last two recessions. It is currently near historic highs.
- Instability of Medicare and Social Security continues as 70,000 baby boomers are retiring every day.
- State and local pension funds are sitting at a shortfall of $3.8 trillion.
- After sitting at 1% or lower for only one quarter in the 1950s, the Fed Funds rate has now been at or below that level since 2009.
- The real price of money is being distorted by a Fed balance sheet that sits almost six times higher than other pre-crisis levels.
- Low interest rates and a high balance sheet have been tolerated too long.
- The Fed is having great difficulty setting policy and clearly stating objectives.
For these and many other reasons, investors are encouraged to proceed with great caution. When the bubble bursts, the pain figures to be widespread.