Salient to Investors:

James Hickman writes:

  • Uninterrupted streaks in which the S&P 500 closes within 10% of its all ­time peak historically precede sudden declines: viz the tech bubble of the 1990s and the credit/housing bubble of the 2000s. The median decline from the peak is ­43% and typically takes 13 months, while the median annual market total returns over the following 10 years from the peaks is only 2.5%.
  • The high cyclically adjusted P/E ratio predicts below ­average stock market returns for the next decade ­­.
  • The low levels of the CBOE Volatility Index and CBOE SKEW Indices signal investor complacency.
  • 11 countries – 67% of the global economy – have had decelerating GDP growth for several years.
  • Sovereign debt levels above 90% have often led to reduced federal spending and increased taxation, and significantly slower economic growth.
  • Population growth is flat in the developed countries that comprise most of the global economic base, while productivity growth has been decelerating. Nearly all future population growth will be in the LDCs.
  • US corporate growth has come primarily from cost-­cutting, with profit margins nearly 70% above the long­-term average, meaning growth cannot continue without top­line growth.
  • Since 1964, the premium of the 10-yr US Treasury yield over its long-­term average has accurately predicted stock market declines 71% of the time: the premium is currently 2.5% versus the average yield of more than 5%.
  • Long-term interest rates are unlikely to rise meaningfully before 2017, so this is not yet bearish: since 1960, the direction of interest rates has predicted market stability 83% of the time.

Read the full article at

Click here to receive free and immediate email alerts of the latest forecasts.