You’re On The Hook for $330,000
You’re On The Hook for $330,000 by Dennis Slothower – Outsider Club
Equity Support Wanes Following FOMC Meetings
The following chart of the S&P 500 shows the typical action that we are seeing across the broad market indexes. Prices have moved to the top of the trading channel and are now primed to correct back to the bottom of the channel as a minimum short-term correction.
Probably the biggest surprise of this week’s earnings reports is Amazon, which reported Thursday after the markets closed. It was not a pretty sight for a company that has dominated the retail market and outperformed on so many measures.
Amazon beat on the top line, reporting revenues of $38 billion against expectations of just over $37 billion. But with Amazon burying itself into new business venture after business venture, it failed on earnings per share, coming in at 40 cents a share versus projections of $1.40 per share.
This EPS miss will compare horribly with PE ratios based on a bloated price this year. Technically, this represents a big black eye — though I doubt that Amazon or Jeff Bezos is too concerned. I like the way MarketWatch headlined the Amazon miss as its share price hit new highs — “Jeff Bezos was the richest person in the world… for half a day anyway.”
Needless to say, Amazon went down 2-4% in afterhours trading. Then started Friday another 3% down.
Government & Personal Debt Breaks $40 Trillion
If you live on debt — you are living on borrowed time. More debt will not solve the fact that you are living above your financial capabilities. Sooner or later you will face bankruptcy.
We recently learned that total government debt combined with total personal debt has just surpassed the $41 trillion mark. That does not include corporate debt — just personal debt and government-by-the-people debt.
That works out to just shy of $330,000 per household. Can you pay off your fair share? Do any of us know someone who can write a check like this to “get out of debt”. Approximately half of that debt is government-owned courtesy of our voted representatives. The other half of that debt is simply all of us. We are really no better than the government we elect!
We laugh at the predicament of Greece, with its long lunches, early retirement, and short work weeks as socialism has turned its country into the homeless of governing sovereigns. Yet the truth is that the U.S. is not far behind. We are flat broke and the only thing that can prevent default is to keep up the charade of borrowing to put off the pain of systemic financial crash as long as possible.
In 1980 each household only needed $38,552 to take care of all of government and personal debt. It has increased by almost 14 times today! We are bankrupt and simply waiting for repossession of our homes, cars, and country!
No one expected our debt bubble to grow like this. And I can say no one expected our stock market bubble to balloon in sync like it has today. Consider these “facts” about this stock market bubble:
- The S&P 500 Cyclically Adjusted Price to Earnings (CAPE) valuation has only been greater on one occasion, the late 1990s. It is currently on par with levels preceding the Great Depression.
- CAPE valuation, when adjusted for the prevailing economic growth trend, is more overvalued than during the late 1920s and the late 1990s.
- S&P 500 Price-to-Sales Ratio is at an all-time high
- Total domestic corporate profits (w/o IVA/CCAdj) have grown at an annualized rate of .097% over the last five years. Prior to this period and since 2000, five-year annualized profit growth was 7.95%, even though this period included two recessions.
- Over the last 10 years, S&P 500 corporations have returned more money to shareholders via share buybacks and dividends than they have earned.
- The top 200 S&P 500 companies have pension shortfalls totaling $382 billion and corporations like GE spent more on share buybacks ($45b) than the size of their entire pension shortfall ($31b), which ranks as the largest in the S&P 500.
- Using data back to 1987, the yield to maturity on high-yield (non-investment-grade) debt is in the 3rd percentile. Per Prudential as cited in The Wall Street Journal, yields on high-yield debt, adjusted for defaults, are now lower than those of investment-grade bonds. Currently, the yield on the Barclays High Yield Index is below the expected default rate.
- Implied equity and U.S. Treasury volatility has been trading at the lowest levels in over 30 years, highlighting historic investor complacency.
Our stock market and our economy are far more primed for a crash and major recession than they were as recently as 2008, prior to the Great Recession / 2008 Crash!
To your wealth,