Portfolio Rebalancing And Valuations. Two Risks We Are Watching.
While analysts are currently very optimistic about the market, the combined risk of high valuations and the need to rebalance portfolios in the short term may pose an unanticipated threat. This is particularly the case given the current high degree […]
The Kalecki Profit Equation And The Coming Reversion
Corporations are currently producing the highest level of profitability, as a percentage of GDP, in history. However, understanding corporate profitability involves more than glancing at quarterly earnings reports. At its core, the Kalecki Profit Equation provides a valuable framework, especially […]
Credit Spreads: The Markets Early Warning Indicators
Credit spreads are critical to understanding market sentiment and predicting potential stock market downturns. A credit spread refers to the difference in yield between two bonds of similar maturity but different credit quality. This comparison often involves Treasury bonds (considered […]
“Trumpflation” Risks Likely Overstated
With the re-election of President Donald Trump, the worries about tariffs and pro-business policies sparked concerns of “Trumpflation.” Inflation has been a top concern for policymakers, businesses, and everyday consumers, especially following the sharp price increases experienced over the past […]
Yardeni And The Long History Of Prediction Problems
Following President Trump’s re-election, the S&P 500 has seen an impressive surge, climbing past 6,000 and sparking significant optimism in the financial markets. Unsurprisingly, the rush by perma-bulls to make long-term predictions is remarkable. For example, Economist Ed Yardeni believes […]
Compound Market Returns Are A Myth?
"Compound market returns." During bullish markets, there is inevitably a regurgitation of this myth that was contrived to extract capital from retail investors and place it in the hands of Wall Street. However, the compound market returns myth was contrived from the myth that "markets always go up," therefore, it is ALWAYS a good time to invest. How often have you seen the following chart presented by an advisor suggesting if you had invested 120 years ago, you would have obtained a 10% annualized return?
The CAEY Ratio & Forward Returns
Over the last couple of week’s (see here and here), I have been discussing the value of Shiller’s CAPE ratio. The Cyclically Adjusted P/E ratio, or CAPE, is often maligned by the media as “useless” and “outdated” because despite the […]