Current market valuations are consistent with negative expected returns for the S&P 500 over the coming 10-12 years, with a likely market loss of more than -60% in the interim. The proposition that “lower interest rates justify higher valuations” has become a rather dangerous slogan, and is a distressingly incomplete statement that ignores the other half of the sentence: “provided that the stream of expected cash flows is held constant.”
This week we are going to take a hard look at the unfunded liabilities and debt of the US government. And even though the federal unfunded pension liabilities dwarf those of state and local pensions, I want to make it clear that I believe the state and local problems will be far more intractable.
We believe it’s not too late for investors to seek attractive relative value opportunities and reposition equity exposures in this aging cycle.
The present moment of blissful delusion is remarkable to witness. Take it in. A few words and updated charts will do.
Readers outside the US might have felt smug and safe reading those stories. There go those Americans again, spending wildly beyond their means. You are correct that, generally speaking, we are not exactly the thriftiest people on Earth. However, if you live outside the US, your country may be more like ours than you think. Today we’ll look at some data that will show you what I mean. This week the spotlight will be on Europe.
In a move that was little noticed outside of the financial world, China announced the creation of an oil futures contract (open to international traders) that will be denominated in Yuan and convertible into gold. This move provides the first official linkage of oil to gold, and more importantly a linkage between the Chinese currency and gold.
Tail risk hedging seeks to protect gains without loss of upside equity potential.
Starting conditions matter. Today’s investment yields impact future realized returns. But many still rely on past returns to estimate future returns. Our online Asset Allocation Interactive tool gives you the information you need to look ahead, not just back.
So the mindset, I think, goes something like this. Yes, market valuations are elevated, but, you know, low interest rates justify higher valuations. Besides, there’s really no alternative to stocks because you’ll get what, 1% annually in cash? Look at how the market has done in recent years. There’s no comparison.
Master limited partnerships, once considered utility-like yield instruments, have come to be viewed largely as leveraged commodity investments – but is the pendulum about to swing back?