“Next Global Downturn Will Blindside Most”

Spectacular equity gains have a fragile and weak fundamental basis.

Primarily based on a massive debt explosion favoring equities.

Corporate earnings broadly unchanged over the last 3 years

Job gains for high school graduates have been “modest at best” in the “recovery”.

Central banks are withdrawing support while growth cycle tailwinds are already subsiding.

Portfolio shifting out of foreign equities to TIPS.

Cheapest asset class by far is precious metals but cyclical uptrend remains absent.

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Spectacular equity gains have a fragile and weak fundamental basis.

The main tail wind for equity gains in 2017 has been the synchronized uptick in global growth. However, the chart shows that it is now rolling over at a lower high.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Economic Cycle

Primarily based on a massive debt explosion favoring equities.

The chart below shows that the red lines of debt have exploded to hold up the blue lines of growth, but the yellow line of the ex debt economy has rolled back down from a weak bounce that only managed to get back to zero.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The real economy remains chronically weak, as the debt is used to benefit corporations and the stock market.

Tax reform bill: myths about tax cuts and truth about growth.

Corporate earnings broadly unchanged over the last 3 years

While there has been a bounce in the earnings cycle over the last year, it remains a very weak picture on a longer term basis. Over the last 4 years the S&P 500 has massively outperformed earnings.

 

 

 

 

 

 

 

 

 

 

 

 

 

“Since 2014, the stock market has risen (capital appreciation only) by 35% while reported earnings growth has risen by a whopping 2%. A 2% growth in earnings over the last 3-years hardly justifies a 33% premium over earnings.

Of course, even reported earnings is somewhat misleading due to the heavy use of share repurchases to artificially inflate reported earnings on a per share basis. However, corporate profits after tax give us a better idea of what profits actually were since that is the amount left over after those taxes were paid.”

Technically Speaking: This Is Nuts

Job gains for high school graduates have been “modest at best” in the “recovery”

 

 

 

 

 

 

 

 

 

 

 

 

Employment/Population Ratios

Central banks are withdrawing support while growth cycle tailwinds are already subsiding

 

Q3 2017 Review And Outlook

Portfolio shifting out of foreign equities to TIPS

To the extent that real yields have risen with the interest rate rises and yet still subdued inflation, real yields have been rising in TIPs over the last 2 years possibly only temporarily. If the advances in equities are highly fragile fundamentally and downturns are emerging in a number of foreign equitiy markets, this is a good time to reduce foreign equities in favor of TIP, the ETF for Treasury Inflation Protected Securities.

Cheapest asset class by far is precious metals but cyclical uptrend remains absent

The chart below shows that relative to the FMQ monetary indicator, gold is currently as cheap as it has ever been. Fed policy would need to change for gold to find a durable cyclical uptrend. Nevertheless, investors should be aware that historically gold has been one of the best hedges for stocks, and so a small allocation could make sense.

Monetary Gold All Time Low

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