S&P 500 Valuation: Is Leverage An Issue? by Todd Sullivan, ValuePlays
Here is the S&P 500 Intrinsic Value vs. S&P 500 again. Only ~5% over priced and housing and commercial construction AND financial inst lending have really not begun. So nowhere near the level of leverage which results in severe corrections.
What others do is make comparisons to nonsensical patterns. The first is using an avg market price without reference to fundamental valuation. You cannot equate anything before 1933 with anything after 1933.
Qualivian Investment Partners Up 30% YTD; Long ORLY Thesis
Qualivian Investment Partners commentary for the second quarter ended July 30, 2020. Q2 2020 hedge fund letters, conferences and more “Short-term investors will accept a 20% gain because they didn’t spend the time to develop the conviction and foresight to see the next 500%.” - Ian Cassell Executive Summary Readers of investment letters fall into Read More
1) Intro of FDIC preserved middle class banking relationships. Individuals who built up equity in businesses and homes held on to these assets as long as they met their financial obligations after FDIC came into being. Before this time if the bank went under then all depositors lost everything, all loans were called and collateral was taken by people who scooped up the loans at huge discounts. Heddy Green did this!!
2) Look at my chart of Schiller’s information-at bottom. See the break in earnings and S&P 500 at 1933-1934-The world changed after FDIC.
3) S&P 500 earnings before 1933 grew at 1.76% and afterwards 6.1%.
4) When you use my S&P 500 Intrinsic Value Index which essentially takes GDP as the capitalization rate and apply it to median S&P 500 earnings(not the current eps) to gauge SPDR S&P 500 ETF Trust (NYSEARCA:SPY) pricing it is not so high
5) Lastly, people using borrowed funds charts actually reflects margin from Hedge Funds which now carry $3Tril in assets. Individuals are not using margin at this level.
The analysis is typical of what we are seeing with other widely respected investors. This is why there is so much opportunity for those who see 10yr Treas at 2.3% as the major bubble at the moment. So many feel 2.3% 10yr Treas (iShares Barclays 7-10 Year Trasry Bnd Fd (NYSEARCA:IEF)) as justified given the conditions. They will not feel this way once rates rise over 5%.