Wilshire 5000 market cap / GDP exceeds dot-com peak

[RuleNumberOne]

Yeah, I know, GDP is not a good metric. But it is more accurate than non-GAAP adjusted earnings.

 

https://fred.stlouisfed.org/graph/?g=qLC

 

Trump has ordered drones to keep circling above the houses of FOMC members. Jay Powell hasn't come out of his house since he heard the Iran news and is even avoiding sunlight.

 

Richard Clarida reassured everyone (from his basement) that the Fed will not hike rates - i.e. that he is worried about low inflation. In Silicon Valley, oil change prices go up 20% every 6 months, healthcare providers have promised and are delivering a 10% price hike every year, home price growth has resumed.

 

Debt held by Wilshire 5000 would be much higher than the dot-com peak, meaning the EV would be much higher.

 

[ValuePadawan]

The link you provided only shows up to 2014 as its default adjust it to 2020 and sit down before you do. I always understood the important thing to look at was GNP not GDP. That being said the GNP still is higher than it was in the dot com bubble but I think it's better apples to apples.

 

https://fred.stlouisfed.org/graph/?g=oQt

 

Don't forget to adjust the time scale to now.

[Guest]

If you're so bearish, why be 100% stock?

[RuleNumberOne]

Yeah, thanks. We need to click on "Max". Pretty staggering that the Fed vice-chair reassured everyone today that they won't raise rates.

 

Wilshire 5000 / GNP at all-time highs, though it first crossed the dot-com peak in Q3 2018.

 

US corporate debt at all-time highs.

 

The link you provided only shows up to 2014 as its default adjust it to 2020 and sit down before you do. I always understood the important thing to look at was GNP not GDP. That being said the GNP still is higher than it was in the dot com bubble but I think it's better apples to apples.

 

https://fred.stlouisfed.org/graph/?g=oQt

 

Don't forget to adjust the time scale to now.

[RuleNumberOne]

stahleyp, I am mostly cash today, but i might get back into the market any time. We have a very weak Fed Chairman - no courage, no credibility, no confidence, easily bullied by the likes of Trump/Bullard/Cramer.

 

Greenspan raised rates to 6% and inverted the yield curve at a lower level for the Wilshire 5000/GNP ratio (and higher unemployment). Paul Volcker said if you don't want deflation, don't blow bubbles. Volcker also thought the obsession over 2% inflation was ridiculous. This is either in Volcker's latest book or some WSJ/FT op-ed he wrote before he died.

 

This is a special bubble, one so big that central banks are too scared to pop it and are doing everything they can to preserve the bubble. Europe is worse off than it was in 2007-2008. The debt to GDP in US+Europe is higher than 2008. US corporate debt ratios are at all-time highs.

 

The Wilshire 5000/GNP first exceeded the dot-com peak in Q3 2018. The Fed has only lowered rates since then.

 

 

If you're so bearish, why be 100% stock?

[thepupil]

Which companies in the S&P 500 are overlevered? What percent of the market cap and earnings power do they comprise?

 

Banks are in the best shape they’ve been. Publicly traded corporate America is not overlevered, in my opinion. Debt has been well termed out. Rates are super low, interest coverage is high.

 

Show me otherwise. PE/LBO’s are another story, but not big companies

 

https://www.cornerofberkshireandfairfax.ca/forum/general-discussion/buybacks-have-exceded-free-cash-flow-for-the-first-time-since-the-financial-cris/msg377459/#msg377459

[RuleNumberOne]

Look at the graph:

https://www.dallasfed.org/research/economics/2019/0305.aspx

 

Overlevered depends on the rate. If the rate is zero, there is no interest expense, and nothing overlevered (like Italy).

 

 

Which companies in the S&P 500 are overlevered? What percent of the market cap and earnings power do they comprise?

 

Banks are in the best shape they’ve been. Publicly traded corporate America is not overlevered, in my opinion. Debt has been well termed out. Rates are super low, interest coverage is high.

 

Show me otherwise. PE/LBO’s are another story, but not big companies

 

https://www.cornerofberkshireandfairfax.ca/forum/general-discussion/buybacks-have-exceded-free-cash-flow-for-the-first-time-since-the-financial-cris/msg377459/#msg377459

[Cigarbutt]

^This is not a black or white topic (corporate leverage) and a fundamental reflex is to reflect on individual holdings in one’s portfolio and not ‘worry’ about aggregate numbers.

 

Despite the above, this may be relevant. First step, strengthen the opposing view’s argument. Yes, banks are in a much better shape and, for corporate debt, bond issues have taken the lead and depository institutions have not really participated in the rising ‘loan’ presence (especially leveraged loans, CLOs etc). Yes, averages, in a way, don’t tell much but (according to S&P sources), of the about 2000 issuers that are graded in the US, 25 firms hold about 50% of the cash and smaller firms tend to show increasingly poor coverage ratios. Also, if one focuses on the average debt service ratios, historical norms are respected and, of course, that’s an input used to justify also the real estate market dynamics in Canada (and other countries), the public debt levels etc.

 

However, in balance, the corporate debt level has reached very unusual levels and for this level to be maintained requires a relatively unusual set of assumptions.

 

-----

 

Personal anecdote (so extremely limited value)

When I graduated in the 90’s, for various reasons, most of my ‘colleagues’ went back or decided to go to the US and I kept contact. This was also a fundamental source of ‘bottom’ sentiment when, for instance, I became interested in the US real estate phenomenon in the years 2000s. These acquaintances and ‘friends’ had strong earning power, strong debt-service ratios and basically signaled that averages didn’t really matter. This group was exposed to real estate (sometimes in more ways than one) and they really hurt when prices came down and, in fact, have barely recovered. When I spoke to them around the holidays (most are doing reasonably well, average for their group I guess), it was mentioned that the relief had come in part from the booming equity markets. It would have been inappropriate to discuss corporate leverage during those conversations and, because of social conventions and the always present uncertainty, I did not tell them that, maybe, again, I may end up buying what they’re selling. Most of the times, I just shut up but anonymity alters conventions.

FWIW, I think thepupil will do very well whatever the circumstances but that may not be true for the average (corporate or not) citizen.

 

[RuleNumberOne]

The 13 states in the West were found by the government to have an inflation around 3% over the last two years. That implies the remaining states dragged down the inflation average. (See the link below).

 

https://www.bls.gov/regions/west/news-release/consumerpriceindex_west.htm

 

Anybody who lives in Silicon Valley can check their credit card statements from a few years ago and see that they were paying around $35 for an oil change. Now the prices have doubled to around $70 in just 3-4 years.

 

Why does the Fed expect the NASDAQ boom to generate inflation in deserted states like Alabama or Mississippi? If inflation is weighted by GDP, it should be easily above the Fed's 2% target.

 

If GDP-weighted inflation is found to be above 2%, the pile of debt will catch fire. Poof!

 

^This is not a black or white topic (corporate leverage) and a fundamental reflex is to reflect on individual holdings in one’s portfolio and not ‘worry’ about aggregate numbers.

 

Despite the above, this may be relevant. First step, strengthen the opposing view’s argument. Yes, banks are in a much better shape and, for corporate debt, bond issues have taken the lead and depository institutions have not really participated in the rising ‘loan’ presence (especially leveraged loans, CLOs etc). Yes, averages, in a way, don’t tell much but (according to S&P sources), of the about 2000 issuers that are graded in the US, 25 firms hold about 50% of the cash and smaller firms tend to show increasingly poor coverage ratios. Also, if one focuses on the average debt service ratios, historical norms are respected and, of course, that’s an input used to justify also the real estate market dynamics in Canada (and other countries), the public debt levels etc.

 

However, in balance, the corporate debt level has reached very unusual levels and for this level to be maintained requires a relatively unusual set of assumptions.

 

-----

 

Personal anecdote (so extremely limited value)

When I graduated in the 90’s, for various reasons, most of my ‘colleagues’ went back or decided to go to the US and I kept contact. This was also a fundamental source of ‘bottom’ sentiment when, for instance, I became interested in the US real estate phenomenon in the years 2000s. These acquaintances and ‘friends’ had strong earning power, strong debt-service ratios and basically signaled that averages didn’t really matter. This group was exposed to real estate (sometimes in more ways than one) and they really hurt when prices came down and, in fact, have barely recovered. When I spoke to them around the holidays (most are doing reasonably well, average for their group I guess), it was mentioned that the relief had come in part from the booming equity markets. It would have been inappropriate to discuss corporate leverage during those conversations and, because of social conventions and the always present uncertainty, I did not tell them that, maybe, again, I may end up buying what they’re selling. Most of the times, I just shut up but anonymity alters conventions.

FWIW, I think thepupil will do very well whatever the circumstances but that may not be true for the average (corporate or not) citizen.

[RuleNumberOne]

The 13 states in the Western region contribute 22.1% of US GDP. With a 3% inflation rate, the Western region alone would contribute 0.66% to the overall total if inflation were weighted by GDP.

 

https://en.wikipedia.org/wiki/List_of_U.S._states_and_territories_by_GDP

 

[thepupil]

I see little credit risk in the entirety of the S&P 500. I'm not talking just the top 10, not talking about my holdings, I'm talking all of it.

 

In the S&P 500 ex financials (439 companies), 263 have 5 yr CDS  spreads below 56 basis points, and a further 138 ar between 56-106 bps, so 400 / 439 have credit spreads below 106 bps.

 

There are like 3 companies above 200 bps: Apache, Occidental and L Brands.

 

Now we are on COBF so we don't believe in perfect market efficiency and that low credit spreads is necessarily evidence of low credit risk, so let's take a look at some fundamentals.

 

247 of those companies are less than 2x levered using trailing EBITDA. Only 80 are above 4x. the median is 1.7x levered. Even at higher borrowing rates, these companies will be fine.

 

Listed below are the scary companies that are over 5x levered and that's just using bloomberg dumb data, not adjusted or anything.

I see a bunch of well covered real estate companies and some onese that actually carry a fair bit of leverage (TDG for example).

 

I'm not trying to completely dismiss the macro risk. But the data is the data. I see a bunch of very healthy credits in publicly traded corporate america; i see a bunch of highly levered private equity portcos where the lenders are CLO's and private debt funds that themselves aren't levered and comprise a small portfion of various institutional investors portfolios. Perhaps the risk of LBO, CLO, etc. will bleed into the economy there'll be a recession and stocks go down. But don't look to big publcily traded corporate america to start experiencing credit events.

 

fear not the all time high corporate debt ratios if you hold broad indices. if you hold individual stocks you can avoid that too. I happen to have a large position in the 4th most levered company on this list. I think it has virtually no net corporate debt.

 

Equifax Inc

Newell Brands Inc

Edison International

Vornado Realty Trust

Alliance Data Systems Corp

CarMax Inc

Williams Cos Inc/The

Zimmer Biomet Holdings Inc

SL Green Realty Corp

Campbell Soup Co

General Electric Co

Digital Realty Trust Inc

Hologic Inc

Harley-Davidson Inc

Apartment Investment & Management Co

Dominion Energy Inc

TransDigm Group Inc

Western Digital Corp

Kimco Realty Corp

Healthpeak Properties Inc

Boston Properties Inc

Molson Coors Beverage Co

Welltower Inc

Noble Energy Inc

Dollar Tree Inc

SBA Communications Corp

NiSource Inc

Essex Property Trust Inc

Ventas Inc

American Airlines Group Inc

Entergy Corp

Alexandria Real Estate Equities Inc

Conagra Brands Inc

Extra Space Storage Inc

AES Corp/VA

CMS Energy Corp

Federal Realty Investment Trust

Duke Energy Corp

Simon Property Group Inc

PPL Corp

Realty Income Corp

Constellation Brands Inc

Kinder Morgan Inc/DE

Sempra Energy

Eversource Energy

Duke Realty Corp

MGM Resorts International

Microchip Technology Inc

Equity Residential

Prologis Inc

TechnipFMC PLC

 

[thepupil]

If GDP-weighted inflation is found to be above 2%, the pile of debt will catch fire. Poof!

 

Why? If inflation goes to say 3% and rates back up 100 bps, then the investment grade bonds which comprise the bulk of corporate debt might sell off by...wait for it...7 or 8 points, and they yield 2.8%.

 

So that "poof" may be more like a -4 or -5% total return.

 

What kind of inflation are you talking about? 10%?

[Guest]

stahleyp, I am mostly cash today, but i might get back into the market any time. We have a very weak Fed Chairman - no courage, no credibility, no confidence, easily bullied by the likes of Trump/Bullard/Cramer.

 

Greenspan raised rates to 6% and inverted the yield curve at a lower level for the Wilshire 5000/GNP ratio (and higher unemployment). Paul Volcker said if you don't want deflation, don't blow bubbles. Volcker also thought the obsession over 2% inflation was ridiculous. This is either in Volcker's latest book or some WSJ/FT op-ed he wrote before he died.

 

This is a special bubble, one so big that central banks are too scared to pop it and are doing everything they can to preserve the bubble. Europe is worse off than it was in 2007-2008. The debt to GDP in US+Europe is higher than 2008. US corporate debt ratios are at all-time highs.

 

The Wilshire 5000/GNP first exceeded the dot-com peak in Q3 2018. The Fed has only lowered rates since then.

 

 

If you're so bearish, why be 100% stock?

 

You went from fully invested to mostly cash in about a month? What's changed?

 

 

[thepupil]

I’m also sort of confused as to why the “debt bubble” = don’t own stocks. If corporate debt is a bubble, the biggest beneficiaries of that bubble popping could be  healthy corporate borrowers, who could presumably buy back that bubble era debt at good prices or pay very low rates on that bubble era debt for in some cases 30 or more years until maturity.

 

Imagine the dollar prices of debt that these low spread long duration borrowers could get to if you’re right about inflation/ rates really picking up (at least that’s what I think you’re getting at)

 

Do you think there will be a deflationary depression when the bubble pops, therefore you cant own stocks? then why are you harping on inflation?

[Cigarbutt]

I see little credit risk in the entirety of the S&P 500. I'm not talking just the top 10, not talking about my holdings, I'm talking all of it.

...

That was very helpful.

A potential counter-argument is that looking under the hood may reveal more "vulnerability" and using the EBITDA to debt ratio comes with certain assumptions for the EBITDA part. The debt part tends to be more sticky. Of course, relatively optimistic assumptions may hold for long enough to negate any potential gain from an inability to climb the wall of worry for many specific names.

 

Some suggest that a conclusion from the debt to GDP graph found in the Dallas Fed link provided by RuleNumberOne is that high corporate leverage can induce recessions which, obviously is an over-stretched conclusion. A clear message though is that the relationship tends to be positive in good times and negative in bad times, whatever causes and whenever the recessionary transition occurs.

 

If interested, here are two links that discuss the corporate issue in a balanced way (except for the title of the first). The first link describes the increasing net debt to EBITDA for the largest 2000 companies and contains many other useful data points and analysis. The second link is a blog I regularly follow and the specific link discussed the Dallas Fed report, contemporary to its release. The author is not a "doom and gloom" type and, even if macro factors are considered, multiple sources from many angles are considered. In the blog, many interesting aspects of the corporate debt dynamics are discussed: debt to EBITDA for largest 2000 companies, interest coverage ratios etc.

https://www.whitehelmcapital.com/wp-content/uploads/2019/07/Thought-Leadership-June-2019-US-Corporat-Debt-1-1.pdf

https://www.edgeandodds.com/smart-investing/in-gods-we-trust/

 

As you mention, a receding tide may actually strengthen the survivors and, timing aside, the easiest way to deal with this is to pick the survivors. I just want to add though that all transitions have different flavors and the next one may be interesting from a liquidity point of view for the huge BBB tranche that exists now and the related spill-over effects on the market in general.

 

As a final note, I will use an example (possibly not relevant or useful for you or anybody in fact) that I think is a reflection of the relative complacency that has made its way into the corporate debt market (global). Recently, in the context of a specific name analysis, I came across a company that is an airline and that went to the debt market in order to buy back a minority interest in a loyalty business (contrary to the airline business, loyalty units are capital-lite, have high margins and are sources of free cash flows even during downturns). The purchase consideration was funded by debt and the free cash flow yield was below the interest coupon and the result is an extremely levered capital intensive airline. The coupon was 8% and the issue was massively oversubscribed. Maybe I look at the wrong places but covenants and terms that I see point to the possibility of complacency and wonder if credit spreads tell the whole story.

[Spekulatius]

Almost any recession is closely related or caused by a credit even. The 2001 recession was not just the aftermath of a dot Comrades move forward! Bubble, there were a lot of telecom and independent power producers going bankrupt (Global Crossing, Worldcom,  Mirant, Enron, -  El Paso and Williams almost went bankrupt) The GFC was centered around the financial system, but eventually the credit crunch hit the whole economy.

 

I think it is reasonable to assume that the next recession will also be related or caused by a credit event.

[wabuffo]

Corporate debt to after-tax corporate profits currently at 5.42X  (average for the last 65 years = 5.43X)  Max was in 1990 = 9.08X, Min was in 1966 = 3.32X

 

In a recession, profit dips, so the ratio will increase, but it doesn't look like businesses would be starting from an overleveraged position (relative to history).

 

 

FWIW,

wabuffo

[Spekulatius]

Corporate debt to after-tax corporate profits currently at 5.42X  (average for the last 65 years = 5.43X)  Max was in 1990 = 9.08X, Min was in 1966 = 3.32X

 

In a recession, profit dips, so the ratio will increase, but it doesn't look like businesses would be starting from an overleveraged position (relative to history).

 

 

FWIW,

wabuffo

 

Corporate debt/ Pretax ratio would be a better measure since interest is paid from $. Since the tax rates are at a historic low, using post tax numbers does skew the ratio a bit. but overall, the point is valid.

[RuleNumberOne]

Corporate debt is a minor issue. The main issue is the all-time high Market cap/ GNP and EV/GNP, higher than even the dot-com peak. I just prefer using GNP in the denominator because when people say "profits" it could mean anything. There is a wide spectrum full of bullshit in the area between GAAP and non-GAAP.

 

This bubble is so big, central bankers are going to prop it up with everything they have. Even if Eurocrats have to suppress democracy and central bankers have to turn into dictators:

 

 

https://www.euronews.com/2019/10/28/is-italy-s-ruling-coalition-at-risk-after-salvini-s-triumph-in-umbria

 

"Some newspapers have speculated that the outgoing European Central Bank President Mario Draghi might be asked to try to form a government of technocrats should the current administration fall.

Salvini dismissed such a prospect as "disrespectful" for Italians. "If this government falls, the only way forward would be new elections," he said."

 

Remember "will do whatever it takes to preserve the Euro"? The world would be better off without the Euro. The Euro has inflicted so much misery in Europe.

 

[thepupil]

RuleNumberOne, which companies/sectors/etc. do you think are severely overvalued and/or overearning?

 

Cigarbutt, appreciate the feedback; I’ll have a look at the papers.

[JRM]

i would argue that most regulated utilities are over-earning right now.  The spread between cost of capital and allowed ROE is obscene for many regulated utilities.  I'm not sure if the spread has ever been this high.  Not sure how long the current low interest rates will hold alongside regulators allowing high ROE in a low interest rate environment. 

 

Also, low interest rates have led investors to search for yield and likely using utilities as a bond replacement.  Potentially very dangerous, imo.

[Cigarbutt]

Corporate debt to after-tax corporate profits currently at 5.42X  (average for the last 65 years = 5.43X)  Max was in 1990 = 9.08X, Min was in 1966 = 3.32X

 

In a recession, profit dips, so the ratio will increase, but it doesn't look like businesses would be starting from an overleveraged position (relative to history).

...

wabuffo

Corporate debt/ Pretax ratio would be a better measure since interest is paid from $. Since the tax rates are at a historic low, using post tax numbers does skew the ratio a bit. but overall, the point is valid.

In fact, at all levels (gross and operating margins, interest, tax, generous EBITDA "add-ons"), some may suggest that this as good as it gets.

I work with the assumption that wabuffo is right but can't help remembering what Mr. Buffett suggested, in 1999, (one of the very rare occasions when he talked more specifically about the 'market' in general) that expectations that net profit margins could go higher than 6% for any sustainable time..

https://fred.stlouisfed.org/graph/?g=gt9

were not reasonable and, in the event that it would occur, this would likely trigger the modern monetary theory (he did not exactly say that but that's a 'final value' (in 2020) that can be inferred from the comments. Where is Jim Bowerman when you need him to explain that debt doesn't matter?

 

(The following is not meant to be snarky, it's just relaying a state of mind)

In 1945, (if my numbers are correct), corporate debt to GDP was about 10 to 15% and this number has crept up pretty much linearly (if you forget some bumps and note that interest rates have been low before). Apologies for going back in history but I'm reading these days about the early banking merchants in city states in Northern Italy. A message form many history books touching on debt and interest rates (at least the books that were printed before the rise of central banks) implies that using higher leverage is a sign of sophistication and keeping interest rates low, a sign of collective intelligence. I guess we'll find out how far this can go. Anyways, why worry as the corporate debt, in the event that profitability suffers in a reflexive way, could always end up social debt. All for one and one for all. So, in the unlikely event that we go down this path, I suggest that we just skip the step (others are doing it already) where the Fed would buy corporate bonds (top S&P quality, fallen angels and toxic) and, instead of being a lender of last resort, simply becomes The Lender to the corporate world, its populace and, why not, The World and finally achieves the ability to match its assets with virtual book entry liabilities.

 

Enough time spent (wasted?) on this topic. FWIW, I need to spend time on REV and AMC and, apparently, need to understand that, fiduciary duty notwithstanding, these free cash flow generating entities are smartly using leverage and need to stop worrying that their incremental return on additional debt has been on the decline. 8)

 

 

 

[wabuffo]

in 1999, (one of the very rare occasions when he talked more specifically about the 'market' in general) that expectations that net profit margins could go higher than 6% for any sustainable time..were not reasonable

 

Buffett is not a great macro-forecaster (and he admits as such).  Remember his "how inflation swindles the equity-investor"?  Well the publication of that article pretty much marked the top for inflation in the US.  As I continue to point out - there are two major valuation inputs that have changed since Buffett's iconic 1999 Fortune article. 

 

1) At the time of the article, the 30-year Treasury was yielding over 6.5%.  Today it is 2.3%.  Buffett admitted in that article, that this was a factor that could change his forecast (though he didn't predict it).  This input is a two-fer for valuation purposes.  Corporate America is paying less for its debt - plus discount factors for equity valuations have to be pegged lower.  This was also a reason Buffett was bearish at the time - in 1999, 30-year Treasuries were yielding a higher rate than the earnings "yield" on Corporate America.  That is not the case today.

 

2) The Federal tax rate on corporate pre-tax income was 35%, today it is 21%.  Uncle Sam has decided to transfer 14% of his ownership stake in Corporate America to us, the private sector owners, at no cost.  I think that's a big deal.

 

It seems to me, one would have to adjust a time series of market cap ratios for these two important input factors.  Whether these input factors continue to stay at their current values, I have no idea (though I am not betting against it).

 

wabuffo

[RuleNumberOne]

1) Buffett never predicted whether inflation would go up or down in "how inflation swindles the equity investor." He explained how it affects return on capital and business investment decisions, didn't predict the future.

 

2) If generating prosperity were as easy as keeping rates low so that extremely high P/Es could be justified ("rates are 1%, a P/E of 50 is low"), Europe and Japan should have been booming. Instead  Europe and Japan are dying. You need to wash away the mal-investments from time to time.

 

Instead of exposing failure, Europe and Japan just cover everything up forever and their media participates in the coverup. Europe has had negative rates for 5 years (under the pretext of 1.4% inflation but really to cover up insolvency) and what are the results? If we had a Fed Chairman with a backbone, he would have raised US rates and told the IMF+ECB to go to hell.

 

3) Every Dem candidate wants to take the corporate tax rate back to where it was. It will eventually happen because many in the US population feel very entitled to all the good stuff even if they contribute nothing back to the system.

 

 

in 1999, (one of the very rare occasions when he talked more specifically about the 'market' in general) that expectations that net profit margins could go higher than 6% for any sustainable time..were not reasonable

 

Buffett is not a great macro-forecaster (and he admits as such).  Remember his "how inflation swindles the equity-investor"?  Well the publication of that article pretty much marked the top for inflation in the US.  As I continue to point out - there are two major valuation inputs that have changed since Buffett's iconic 1999 Fortune article. 

 

1) At the time of the article, the 30-year Treasury was yielding over 6.5%.  Today it is 2.3%.  Buffett admitted in that article, that this was a factor that could change his forecast (though he didn't predict it).  This input is a two-fer for valuation purposes.  Corporate America is paying less for its debt - plus discount factors for equity valuations have to be pegged lower.  This was also a reason Buffett was bearish at the time - in 1999, 30-year Treasuries were yielding a higher rate than the earnings "yield" on Corporate America.  That is not the case today.

 

2) The Federal tax rate on corporate pre-tax income was 35%, today it is 21%.  Uncle Sam has decided to transfer 14% of his ownership stake in Corporate America to us, the private sector owners, at no cost.  I think that's a big deal.

 

It seems to me, one would have to adjust a time series of market cap ratios for these two important input factors.  Whether these input factors continue to stay at their current values, I have no idea (though I am not betting against it).

 

wabuffo

[wabuffo]

Buffett never predicted whether inflation would go up or down in "how inflation swindles the equity investor." He explained how it affects return on capital and business investment decisions, didn't predict the future.

 

Sure - he never made an outright prediction - but he was pretty gloomy about inflation being a perpetual issue in the US.  Here's the "money" quote that ends the article:

"On balance, however, it seems likely that we will hear a great deal more as the years unfold about underinvestment, stagflation, and the failures of the private sector to fulfill needs"

 

...this is how the long-term stagflation environment looked like after the publication of his article.  I'm not knocking Buffett here - you are correct that his purpose was mostly educational.  But if we give him credit for "Buy Stocks, I am" in 2008, then he gets dinged for the pessimism in this article, IMHO. 

 

 

wabuffo