Thread by @NAVACapital

1 A thread on our new article on the US markets (mis) valuation
research.nava.capital/market-valuati…

@albertedwards99 @mjmauboussin @MebFaber @johnauthers @INArteCarloDoss @jposhaughnessy @FTAlphaville @TheStalwart @BittelJulien @C_Barraud @VolatilityQ

2 Our goal is to show, as objectively as possible, the discrepancy between the intrinsic and the current value of the S&P 500 and what it implies for future returns.

@jessefelder @LeutholdGroup @HorizonKinetics @Not_Jim_Cramer @patrick_oshag @5thrule @MacroCharts @macro_srsv

3 Our conclusion is that the S&P 500 is not likely to have a positive nominal total return in the next 10 years and a ‘miracle’ would be needed to achieve positive real total returns.

@CliffordAsness @RA_Insights @GestaltU @choffstein @hblodget @hkuppy @42macroDDale @verdadcap

4 Central Banks have brought forward future equity returns (and some more) with their accommodative policies and hyper-sensibility to downside volatility.

@RBAdvisors @DiMartinoBooth @SheilaBair2013 @neelkashkari @benbernanke @SecYellen @hendry_hugh

5 Being blunt we would be surprised if the S&P 500 does not revisit at least the 2020 lows in the coming years.

@elerianm @TruthGundlach @Nouriel @RobinWigg @DrPippaM @HayekAndKeynes @BillAckman

6 Buy the Dips works so well, let's build a narrative around it, let's create new viral acronyms, BTFD, FOMO, HODL,...

@EpsilonTheory @VolatilityQ @lisaabramowicz1 @LizAnnSonders @jimcramer @MrZackMorris @PJ_Matlock @Hugh_Henne

7 This time it is really different! Is it?
@ttmygh @AswathDamodaran @edwardnh @ReformedTrader @RayDalio @kevinmuir
#bubble #assetallocation #euphoria

8 When finance dominates everything, when companies' management are obsessed by financial engineering and st personal rewards, when governments/central banks/regulators are controlled and not controlling, dogmatic and not pragmatic, the result cannot be good.

@GaryGensler

9 Rates below a certain level have a detrimental effect on the real economy as investments in new productive capital become less elastic to rates as they decline toward 0%. Zombies survive, preventing creative destruction, leaving excess supply in place.

@EconomicsOne

10 The only thing striving is finance where actors put on increased leverage to buy existing capital (buybacks, M&A, dividend payment to private equity firm,…)
The sad consequence is a larger stock of debt unbacked by new productive capital.

@IdLibertes @elerianm

11 ...the US S&P 500 is, at today's level, the most overvalued it has ever been. We will demonstrate it using a methodology proposed by J. Hussman, the Margin-Adjusted Cyclically-Adjusted Price Earning Ratio (MAPE).

@hussmanjp @RobertJShiller

12 If we construct an historical corridor with boundaries between the 0% and 50% percentiles of MAPE history, the prospect looks grim for Buy and Holders.

13 Assuming a return to the MAPE 50% percentile, with nominal trend earnings growing at their historical pace and the current 1.35% dividend yield, one can see that the S&P 500 nominal total return for the next 10 years would be at -1% annually (-8.4% CAGR at 1982 valuations)

14 We doubt (and it is a strong understatement) the markets will wait 10 years to test the MAPE 50% percentile. A retest in the next 3 years is highly likely. Reaching the MAPE 50% percentile in 3 years’ time would imply an annualized 20.6% loss.

15 It is also important to remember that today's margins are above our 7% assumption and that the CBO is projecting around 4% nominal US GDP growth to 2031. The odds are thus stacked against the >6% nominal earnings growth we have assumed.

16 If market timing is not your cup of tea (research.nava.capital/is-market-timi…)

"It is better to be out of the markets wishing to be in than in the markets wishing to be out" Unknown

“I never invest at the bottom, and I always sell too soon.” Nathan Rothschild

17 If one adds risk-free rates and corporate fixed income yields at record low, passive investors are up for a painful decade and we completely empathize with the TINA mindset especially for those investors who must be invested by mandate.

18 The US equity markets are as overvalued as they have ever been with almost no place to hide. The deck is stacked heavily against positive real and nominal total return for the S&P 500 in the next 10 years. Thanks the Fed and The Treasury for this.

@zerohedge @elonmusk