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Just a quick update on some stats as well as some charts.
The markets continue to trade on light volume with no clear direction. The past few
weeks have saw them claw back part of what they lost in the first six months. The
S&P500 was down 24% and has since increased 12%. Some analysts are stating this is
the start of a new bull market, while many others are stating it is simply a relief rally that
happen in long term bear markets.
To me it doesn’t really matter. I have been stating for the longest time that all of our
indicators match the data that shows we are in for a serious stock market crash. It isn’t
a question of if, it is a question of when.
I’ve been consistent with the reasons as well. That includes the insane amount of
currency that has been printed around the world. The US alone printed $17 trillion
dollars in just the past 2 years. That is the only thing that has kept the world’s largest
stock market going up. Now add in inflation, rising interest rates, $300 trillion global debt
and you see that this is a house of cards that no one can save. A great shaking needs
to occur with the potential to devastate those that aren’t prepared.
A few stats and such that are going on right now.
1. 8% of houses reduced asking price over last month, most since 2000
2. Credit card debt up 20% in 3 months
3. Credit card debt is up 13% since April, the largest increase since 2001.
4. Total credit card debt is set to cross $1 trillion for the first time ever.
5. Most aggressive rate hikes in history into a recession
6. Wars and rumours of wars. Ukraine-Russia, China-US tensions escalating, Israel-
Palestine, Russia strikes US backed militia who are attacking Syria.
7. Inflation at 40-year high. (New US data coming out this Wednesday)
8. The CAPE is (see below) is predicting dismal stock returns.
CAPE explained
The long-term valuation of the market is commonly measured by the Cyclically Adjusted
Price to Earnings ratio, or “CAPE”, which smooths-out shorter-term earnings swings in
order to get a longer-term assessment of market valuation.
A CAPE level of 30 is considered to be the upper end of the normal range, and the level
at which further PE-ratio expansion comes to a halt (meaning that further increases in
market prices only occur as a general response to earnings increases, instead of rising
“just because”). The market is now above that level.
The CAPE is now at 31.10, up from the prior week’s 30.99. Since 1881, the average
annual return for all ten-year periods that began with a CAPE in this range has been
slightly positive (+2.5%) to slightly negative (-1.0%). That’s not an encouraging number
if you have a traditional Buy and Hold portfolio. You can do better through the use of a
Rules Based portfolio.
Here are a few charts.
This chart shows the downward trend that has been in play all year and right now we
are at the top of it. If it breaks above and can sustain itself there and improve then we
might admit we have a new bull market and if it breaks down through the bottom line,
well, you might say “the bottom fell out.”
The next charts go on to illustrate how history might be repeating itself. Charts courtesy
of 2022 Mott Capital.
The first one shows the S&P500 in white alongside 1937, 200 and 2008, all years where
the bottom fell out in September.
This one shows the 50% drop in 1937 with todays market overlayed.
And lastly, another strong correlation to the Great Financial Crisis of 2008
Bottom line, for those that are prepared, the losses can be avoided.
As mentioned in other blogs, the thief does not announce when he will arrive but comes
when you least expect him. But as the homeowner, you can invest into a security
system to save what is rightfully yours.
Yours in Faith, Family and Finance,
Daryl