At the beginning of 2022, our most reliable stock market valuation measures stood at record levels, beyond even their 1929 and 2000 extremes (View Highlight)
By our estimates, that combination produced the most negative expected return for a conventional passive investment portfolio in U.S. history (View Highlight)
For any given set of future cash flows, the lower the price an investor pays today, the higher the returns the investor will enjoy in the future (View Highlight)
At present, investors in Treasury bonds can at least look forward to earning an average of 4.02% annually over a 10-year horizon, and 3.99% annually over a 30-year horizon. Likewise, year-to-date stock market losses have been sufficient to bring our estimates of 10-12 year S&P 500 total returns from the most negative levels in history to – well, about zero (View Highlight)
The chart below illustrates this relationship, showing our most reliable measure: nonfinancial market capitalization to gross value-added, including estimated foreign revenues (MarketCap/GVA), versus actual subsequent 12-year S&P 500 nominal total returns, in data since 1928. (View Highlight)
We find that the most reliable estimation horizon for the S&P 500 tends to be about 12 years (View Highlight)
That’s the point where the “autocorrelation” between valuation measures at one point in time and another point in time drops to zero (View Highlight)
At both of those lows, the Federal Reserve was able to rekindle yield-seeking speculation by rapidly expanding the amount of zero-interest base money that the public had to choke down (which someone has to hold, passing from one investor to the next like hot potatoes (View Highlight)