Good Morning on this fantastic Monday,
Zero on the economic calendar today so things seem pretty quiet. Mortgage bonds are under a little pressure and the big brother 10-yr is outperforming with its yield dropping to .64%. I like this trading range we’re in. We are smack in the middle of it and it is comfortable and predictable. We will ride this between .60 and .70 with until something happens to change that. Stocks are of course up, as they seemingly only move up. Free money will do that. The Wall Street Journal shared a piece on how lofty equity markets may be. I know I beat this drum often and it seems the more often I say anything, the higher the markets trade, but you never want to stay at the party too long. The end of party is just never as fun as the middle of it. Anyway, the WSJ shared that:
The S&P’s record close last week has reignited a longstanding debate about how much attention investors should pay to valuations. The price/earnings ratio on the S&P 500, measured against the past 12 months of earnings, is at the highest level since 2002. The forward P/E, measured against earnings expectations for the next year, is at a mark last hit in September 2000. And the valuation of the median stock in the S&P 500, measured by forward P/E, is now in the 100th percentile of historical levels, according to Goldman Sachs Group, going back four decades—the highest level possible. The index itself is trading at the 98th percentile
And here is an interesting little tidbit on government issued debt. Government debt has soared to levels not seen since World War II, as countries world-wide boost spending to battle the new coronavirus. Among advanced economies, debt rose to 128% of global gross domestic product as of July, according to the International Monetary Fund. In 1946, it came to 124%. It takes a lot of growth to bring down government debt as a percentage of GDP. Each time it has been done, it is through population growth where there is more demand and more labor. Unfortunately, population growth has slowed across every advanced economy (Japan and Italy are negative). Population growth needs to be 1%/yr. or more to drive the economy forward and the percentage of debt down. Time to make more kids!
That’s it for now.
Please remain safe and stay healthy, make today great!