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ABOUT CRESTMONT RESEARCH: FINANCIAL MARKET AND ECONOMIC Crestmont Research, LLC develops provocative insights on the financial markets and provides financial market education services. Crestmont’s financial market education services and edutainment presentations can be developed for online, on-demand, or in-person delivery. Crestmont Research was founded by Ed Easterling, who is theauthor of
STOCK MARKET: SECULAR CYCLES, P/E, AND MARKET VOLATILITY P/E is the pure measure of the stock market valuation level, especially when it is normalized for the business cycle. Dividend yield, directly related to P/E, is a confirming measure that helps to qualify distortions in reported P/Es. The inflation rate is the primary driver of secular stock market cycles. INTEREST RATES: HISTORICAL RATES, INFLATION, AND BOND LADDERS Today we understand that interest rates have a strong fundamental relationship with inflation, a relationship that is expected to generate prompt interest rate adjustments when the rate of inflation changes. Prior to the mid-1960s, the relationship was much less consistent. As a result, the validity of interest rate-relatedanalyses prior to
CRESTMONT RESEARCH
Page 3 of 22 The peak for P/E generally occurs at very low and stable rates of hen inflation inflation. W falls into deflation, earnings (the denominator for P/E) begins to decline on a reported basis ROLLING 10 -YEAR STOCK MARKET RETURN -10%-5% 0% 5% 10% 15% 20% 1909 1923 1937 1951 1965 1979 1993 2007 2021 P/E Increase P/E Decrease Dividend Yield EPS Growth S&P 500:Annualized
P/E RATIO VS. DIVIDEND YIELD The dividend yield of the stock market is relatively low by historical standards. Why? There are two reasons. Many studies present the first reason: corporations are paying a smaller percent of earnings in dividends. Historically, over the past century, the dividend payout ratio has averaged 35% to 60% of earnings. Today, the average payout ratio is near the low end of that range. The second PERCENTAGE POSITIVE AND NEGATIVE DAYS ACROSS VARIOUS 50+ YEARS 1950–2020 Up Days % 53.8% Down Days % 46.2% DECADES 1970s 1980s 1990s 2000s 2010s 2020s Up Days % 51.3% 53.0% 53.7% 52.3% 54.9% 57.3% Down Days % 48.7% 47.0% 46.3% 47.7% 45.1% 42.7% SECULAR BEAR BULL 1966–1982 1983–1999 INTEREST RATES & INFLATION: 1900 Copyright 2003-2021, Crestmont Research (www.CrestmontResearch.com) INTEREST RATES & INFLATION: 1900 - 2020 An Inconsistent Relationship Before The Liberating 1960s GDP REAL GROWTH BY DECADE gdp gdp gdp popu- gdp per by decade nominal real inflation lation capita 1900s 5.3% 3.9% 1.4% 1.9% 1.9% 1910s 10.0% 2.9% 7.1% 1.5% 1.4% 1920s 3.1% 3.4%-0.4% 1.5% 1.9% CRESTMONT RESEARCH: FINANCIAL MARKET AND ECONOMIC RESEARCHSTOCK MARKETINTEREST RATESECONOMYBOOKS VIDEOSFAQSABOUT Crestmont Research develops provocative insights on the financial markets, including the stock market, interest rates, and investment philosophy. The research focuses on the drivers and characteristics of secular stock market cycles, the impact of the inflation rate and interest rates on the stock and bond markets, and a conceptualapproach
ABOUT CRESTMONT RESEARCH: FINANCIAL MARKET AND ECONOMIC Crestmont Research, LLC develops provocative insights on the financial markets and provides financial market education services. Crestmont’s financial market education services and edutainment presentations can be developed for online, on-demand, or in-person delivery. Crestmont Research was founded by Ed Easterling, who is theauthor of
STOCK MARKET: SECULAR CYCLES, P/E, AND MARKET VOLATILITY P/E is the pure measure of the stock market valuation level, especially when it is normalized for the business cycle. Dividend yield, directly related to P/E, is a confirming measure that helps to qualify distortions in reported P/Es. The inflation rate is the primary driver of secular stock market cycles. INTEREST RATES: HISTORICAL RATES, INFLATION, AND BOND LADDERS Today we understand that interest rates have a strong fundamental relationship with inflation, a relationship that is expected to generate prompt interest rate adjustments when the rate of inflation changes. Prior to the mid-1960s, the relationship was much less consistent. As a result, the validity of interest rate-relatedanalyses prior to
CRESTMONT RESEARCH
Page 3 of 22 The peak for P/E generally occurs at very low and stable rates of hen inflation inflation. W falls into deflation, earnings (the denominator for P/E) begins to decline on a reported basis ROLLING 10 -YEAR STOCK MARKET RETURN -10%-5% 0% 5% 10% 15% 20% 1909 1923 1937 1951 1965 1979 1993 2007 2021 P/E Increase P/E Decrease Dividend Yield EPS Growth S&P 500:Annualized
P/E RATIO VS. DIVIDEND YIELD The dividend yield of the stock market is relatively low by historical standards. Why? There are two reasons. Many studies present the first reason: corporations are paying a smaller percent of earnings in dividends. Historically, over the past century, the dividend payout ratio has averaged 35% to 60% of earnings. Today, the average payout ratio is near the low end of that range. The second PERCENTAGE POSITIVE AND NEGATIVE DAYS ACROSS VARIOUS 50+ YEARS 1950–2020 Up Days % 53.8% Down Days % 46.2% DECADES 1970s 1980s 1990s 2000s 2010s 2020s Up Days % 51.3% 53.0% 53.7% 52.3% 54.9% 57.3% Down Days % 48.7% 47.0% 46.3% 47.7% 45.1% 42.7% SECULAR BEAR BULL 1966–1982 1983–1999 INTEREST RATES & INFLATION: 1900 Copyright 2003-2021, Crestmont Research (www.CrestmontResearch.com) INTEREST RATES & INFLATION: 1900 - 2020 An Inconsistent Relationship Before The Liberating 1960s GDP REAL GROWTH BY DECADE gdp gdp gdp popu- gdp per by decade nominal real inflation lation capita 1900s 5.3% 3.9% 1.4% 1.9% 1.9% 1910s 10.0% 2.9% 7.1% 1.5% 1.4% 1920s 3.1% 3.4%-0.4% 1.5% 1.9% ABOUT CRESTMONT RESEARCH: FINANCIAL MARKET AND ECONOMIC Crestmont Research, LLC develops provocative insights on the financial markets and provides financial market education services. Crestmont’s financial market education services and edutainment presentations can be developed for online, on-demand, or in-person delivery. Crestmont Research was founded by Ed Easterling, who is theauthor of
RECENT ADDITIONS: CRESTMONT RESEARCH As information is added to the site, this page will list the significant additions and changes for returning visitors to quickly identify the new information. New developments are expected to be included periodically. Suggestions for new or expanded research initiatives are welcomed at: Info CrestmontResearch.com, or viathe Contact Form.
EASTERLING BOOKS: PROBABLE OUTCOMES AND UNEXPECTED RETURNS Orders exceeding ten (10) boxes of either or both titles are 50% off if shipped by UPS. This is a great opportunity to share one or both books with clients or friends. Unexpected Returns has 16 books in a case box; Probable Outcomes has 24 books in a case box. The case boxes have never been opened and contain new books with dust jackets. UNEXPECTED RETURNS: A COURSE OF INSIGHTS Unexpected Returns: A Course of Insights is a complimentary online, on-demand video-based presentation series delivered by Ed Easterling that discusses key concepts from his book Unexpected Returns.. He combines the teaching style from his experience as an Adjunct Professor with the edutainment style from his ongoing experience as anindustry speaker.
THE IMPACT OF LOSSES The Impact of Losses. View Item. Jump to. Section. There is a very important reason that Warren Buffet’s “first rule of investing” is also the second rule: it takes a lot of gain to make up for losses. This graphic highlights a key lesson of investing. COMPONENTS OF RETURN There are only three components (excluding transaction costs and expenses) to the total return from the stock market: dividend yield, earnings growth, and change in the level of valuation (P/E ratio). To assess the potential returns from stocks for the next decade, this analysis presents the total return and its components for every ten-year period since 1900.CRESTMONT RESEARCH
Page 2 of 13 chart patterns or time periods. Ultimately, however, the designation of period secular under this approach can be fairly subjective or it relies upon an undefined force.CRESTMONT RESEARCH
4 As reflected in Figure 1, the S&P 500 Index started this secular bear market at 1469 and then took an early dive, ending 47% lower at 777 in October 2002.CRESTMONT RESEARCH
Page 3 of 10 Saut’s secular bull green shoots are still developing roots. Nonetheless, chart does his lead the observer to hope that the right margin of the chart willfill with rising green lines. S&P 500 REPORTED EARNINGS PER SHARE: HISTORY & TRENDS $0 $20 $40 $60 $80 $100 $120 $140 $160 $180 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Earnings Per Share (S&P 500) S&P 500 Reported Earnings Per Share: History & Trends CRESTMONT RESEARCH: FINANCIAL MARKET AND ECONOMIC RESEARCHSTOCK MARKETINTEREST RATESECONOMYBOOKS VIDEOSFAQSABOUT Crestmont Research develops provocative insights on the financial markets, including the stock market, interest rates, and investment philosophy. The research focuses on the drivers and characteristics of secular stock market cycles, the impact of the inflation rate and interest rates on the stock and bond markets, and a conceptualapproach
ABOUT CRESTMONT RESEARCH: FINANCIAL MARKET AND ECONOMIC Crestmont Research, LLC develops provocative insights on the financial markets and provides financial market education services. Crestmont’s financial market education services and edutainment presentations can be developed for online, on-demand, or in-person delivery. Crestmont Research was founded by Ed Easterling, who is theauthor of
STOCK MARKET: SECULAR CYCLES, P/E, AND MARKET VOLATILITY P/E is the pure measure of the stock market valuation level, especially when it is normalized for the business cycle. Dividend yield, directly related to P/E, is a confirming measure that helps to qualify distortions in reported P/Es. The inflation rate is the primary driver of secular stock market cycles. INTEREST RATES: HISTORICAL RATES, INFLATION, AND BOND LADDERS Today we understand that interest rates have a strong fundamental relationship with inflation, a relationship that is expected to generate prompt interest rate adjustments when the rate of inflation changes. Prior to the mid-1960s, the relationship was much less consistent. As a result, the validity of interest rate-relatedanalyses prior to
CRESTMONT RESEARCH
Page 3 of 22 The peak for P/E generally occurs at very low and stable rates of hen inflation inflation. W falls into deflation, earnings (the denominator for P/E) begins to decline on a reported basis ROLLING 10 -YEAR STOCK MARKET RETURN -10%-5% 0% 5% 10% 15% 20% 1909 1923 1937 1951 1965 1979 1993 2007 2021 P/E Increase P/E Decrease Dividend Yield EPS Growth S&P 500:Annualized
P/E RATIO VS. DIVIDEND YIELD The dividend yield of the stock market is relatively low by historical standards. Why? There are two reasons. Many studies present the first reason: corporations are paying a smaller percent of earnings in dividends. Historically, over the past century, the dividend payout ratio has averaged 35% to 60% of earnings. Today, the average payout ratio is near the low end of that range. The second PERCENTAGE POSITIVE AND NEGATIVE DAYS ACROSS VARIOUS 50+ YEARS 1950–2020 Up Days % 53.8% Down Days % 46.2% DECADES 1970s 1980s 1990s 2000s 2010s 2020s Up Days % 51.3% 53.0% 53.7% 52.3% 54.9% 57.3% Down Days % 48.7% 47.0% 46.3% 47.7% 45.1% 42.7% SECULAR BEAR BULL 1966–1982 1983–1999 INTEREST RATES & INFLATION: 1900 Copyright 2003-2021, Crestmont Research (www.CrestmontResearch.com) INTEREST RATES & INFLATION: 1900 - 2020 An Inconsistent Relationship Before The Liberating 1960s GDP REAL GROWTH BY DECADE gdp gdp gdp popu- gdp per by decade nominal real inflation lation capita 1900s 5.3% 3.9% 1.4% 1.9% 1.9% 1910s 10.0% 2.9% 7.1% 1.5% 1.4% 1920s 3.1% 3.4%-0.4% 1.5% 1.9% CRESTMONT RESEARCH: FINANCIAL MARKET AND ECONOMIC RESEARCHSTOCK MARKETINTEREST RATESECONOMYBOOKS VIDEOSFAQSABOUT Crestmont Research develops provocative insights on the financial markets, including the stock market, interest rates, and investment philosophy. The research focuses on the drivers and characteristics of secular stock market cycles, the impact of the inflation rate and interest rates on the stock and bond markets, and a conceptualapproach
ABOUT CRESTMONT RESEARCH: FINANCIAL MARKET AND ECONOMIC Crestmont Research, LLC develops provocative insights on the financial markets and provides financial market education services. Crestmont’s financial market education services and edutainment presentations can be developed for online, on-demand, or in-person delivery. Crestmont Research was founded by Ed Easterling, who is theauthor of
STOCK MARKET: SECULAR CYCLES, P/E, AND MARKET VOLATILITY P/E is the pure measure of the stock market valuation level, especially when it is normalized for the business cycle. Dividend yield, directly related to P/E, is a confirming measure that helps to qualify distortions in reported P/Es. The inflation rate is the primary driver of secular stock market cycles. INTEREST RATES: HISTORICAL RATES, INFLATION, AND BOND LADDERS Today we understand that interest rates have a strong fundamental relationship with inflation, a relationship that is expected to generate prompt interest rate adjustments when the rate of inflation changes. Prior to the mid-1960s, the relationship was much less consistent. As a result, the validity of interest rate-relatedanalyses prior to
CRESTMONT RESEARCH
Page 3 of 22 The peak for P/E generally occurs at very low and stable rates of hen inflation inflation. W falls into deflation, earnings (the denominator for P/E) begins to decline on a reported basis ROLLING 10 -YEAR STOCK MARKET RETURN -10%-5% 0% 5% 10% 15% 20% 1909 1923 1937 1951 1965 1979 1993 2007 2021 P/E Increase P/E Decrease Dividend Yield EPS Growth S&P 500:Annualized
P/E RATIO VS. DIVIDEND YIELD The dividend yield of the stock market is relatively low by historical standards. Why? There are two reasons. Many studies present the first reason: corporations are paying a smaller percent of earnings in dividends. Historically, over the past century, the dividend payout ratio has averaged 35% to 60% of earnings. Today, the average payout ratio is near the low end of that range. The second PERCENTAGE POSITIVE AND NEGATIVE DAYS ACROSS VARIOUS 50+ YEARS 1950–2020 Up Days % 53.8% Down Days % 46.2% DECADES 1970s 1980s 1990s 2000s 2010s 2020s Up Days % 51.3% 53.0% 53.7% 52.3% 54.9% 57.3% Down Days % 48.7% 47.0% 46.3% 47.7% 45.1% 42.7% SECULAR BEAR BULL 1966–1982 1983–1999 INTEREST RATES & INFLATION: 1900 Copyright 2003-2021, Crestmont Research (www.CrestmontResearch.com) INTEREST RATES & INFLATION: 1900 - 2020 An Inconsistent Relationship Before The Liberating 1960s GDP REAL GROWTH BY DECADE gdp gdp gdp popu- gdp per by decade nominal real inflation lation capita 1900s 5.3% 3.9% 1.4% 1.9% 1.9% 1910s 10.0% 2.9% 7.1% 1.5% 1.4% 1920s 3.1% 3.4%-0.4% 1.5% 1.9% ABOUT CRESTMONT RESEARCH: FINANCIAL MARKET AND ECONOMIC Crestmont Research, LLC develops provocative insights on the financial markets and provides financial market education services. Crestmont’s financial market education services and edutainment presentations can be developed for online, on-demand, or in-person delivery. Crestmont Research was founded by Ed Easterling, who is theauthor of
RECENT ADDITIONS: CRESTMONT RESEARCH As information is added to the site, this page will list the significant additions and changes for returning visitors to quickly identify the new information. New developments are expected to be included periodically. Suggestions for new or expanded research initiatives are welcomed at: Info CrestmontResearch.com, or viathe Contact Form.
EASTERLING BOOKS: PROBABLE OUTCOMES AND UNEXPECTED RETURNS Orders exceeding ten (10) boxes of either or both titles are 50% off if shipped by UPS. This is a great opportunity to share one or both books with clients or friends. Unexpected Returns has 16 books in a case box; Probable Outcomes has 24 books in a case box. The case boxes have never been opened and contain new books with dust jackets. UNEXPECTED RETURNS: A COURSE OF INSIGHTS Unexpected Returns: A Course of Insights is a complimentary online, on-demand video-based presentation series delivered by Ed Easterling that discusses key concepts from his book Unexpected Returns.. He combines the teaching style from his experience as an Adjunct Professor with the edutainment style from his ongoing experience as anindustry speaker.
THE IMPACT OF LOSSES The Impact of Losses. View Item. Jump to. Section. There is a very important reason that Warren Buffet’s “first rule of investing” is also the second rule: it takes a lot of gain to make up for losses. This graphic highlights a key lesson of investing. COMPONENTS OF RETURN There are only three components (excluding transaction costs and expenses) to the total return from the stock market: dividend yield, earnings growth, and change in the level of valuation (P/E ratio). To assess the potential returns from stocks for the next decade, this analysis presents the total return and its components for every ten-year period since 1900.CRESTMONT RESEARCH
Page 2 of 13 chart patterns or time periods. Ultimately, however, the designation of period secular under this approach can be fairly subjective or it relies upon an undefined force.CRESTMONT RESEARCH
4 As reflected in Figure 1, the S&P 500 Index started this secular bear market at 1469 and then took an early dive, ending 47% lower at 777 in October 2002.CRESTMONT RESEARCH
Page 3 of 10 Saut’s secular bull green shoots are still developing roots. Nonetheless, chart does his lead the observer to hope that the right margin of the chart willfill with rising green lines. S&P 500 REPORTED EARNINGS PER SHARE: HISTORY & TRENDS $0 $20 $40 $60 $80 $100 $120 $140 $160 $180 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Earnings Per Share (S&P 500) S&P 500 Reported Earnings Per Share: History & Trends CRESTMONT RESEARCH: FINANCIAL MARKET AND ECONOMIC RESEARCHSTOCK MARKETINTEREST RATESECONOMYBOOKS VIDEOSFAQSABOUT Crestmont Research develops provocative insights on the financial markets, including the stock market, interest rates, and investment philosophy. The research focuses on the drivers and characteristics of secular stock market cycles, the impact of the inflation rate and interest rates on the stock and bond markets, and a conceptualapproach
ABOUT CRESTMONT RESEARCH: FINANCIAL MARKET AND ECONOMIC Crestmont Research, LLC develops provocative insights on the financial markets and provides financial market education services. Crestmont’s financial market education services and edutainment presentations can be developed for online, on-demand, or in-person delivery. Crestmont Research was founded by Ed Easterling, who is theauthor of
RECENT ADDITIONS: CRESTMONT RESEARCH As information is added to the site, this page will list the significant additions and changes for returning visitors to quickly identify the new information. New developments are expected to be included periodically. Suggestions for new or expanded research initiatives are welcomed at: Info CrestmontResearch.com, or viathe Contact Form.
STOCK MARKET: SECULAR CYCLES, P/E, AND MARKET VOLATILITY P/E is the pure measure of the stock market valuation level, especially when it is normalized for the business cycle. Dividend yield, directly related to P/E, is a confirming measure that helps to qualify distortions in reported P/Es. The inflation rate is the primary driver of secular stock market cycles. INTEREST RATES: HISTORICAL RATES, INFLATION, AND BOND LADDERS Today we understand that interest rates have a strong fundamental relationship with inflation, a relationship that is expected to generate prompt interest rate adjustments when the rate of inflation changes. Prior to the mid-1960s, the relationship was much less consistent. As a result, the validity of interest rate-relatedanalyses prior to
ROLLING 10 -YEAR STOCK MARKET RETURN -10%-5% 0% 5% 10% 15% 20% 1909 1923 1937 1951 1965 1979 1993 2007 2021 P/E Increase P/E Decrease Dividend Yield EPS Growth S&P 500:Annualized
CRESTMONT RESEARCH
Page 3 of 22 The peak for P/E generally occurs at very low and stable rates of hen inflation inflation. W falls into deflation, earnings (the denominator for P/E) begins to decline on a reported basis PERCENTAGE POSITIVE AND NEGATIVE DAYS ACROSS VARIOUS 50+ YEARS 1950–2020 Up Days % 53.8% Down Days % 46.2% DECADES 1970s 1980s 1990s 2000s 2010s 2020s Up Days % 51.3% 53.0% 53.7% 52.3% 54.9% 57.3% Down Days % 48.7% 47.0% 46.3% 47.7% 45.1% 42.7% SECULAR BEAR BULL 1966–1982 1983–1999 P/E RATIO VS. DIVIDEND YIELD The dividend yield of the stock market is relatively low by historical standards. Why? There are two reasons. Many studies present the first reason: corporations are paying a smaller percent of earnings in dividends. Historically, over the past century, the dividend payout ratio has averaged 35% to 60% of earnings. Today, the average payout ratio is near the low end of that range. The second INTEREST RATES & INFLATION: 1900 Copyright 2003-2021, Crestmont Research (www.CrestmontResearch.com) INTEREST RATES & INFLATION: 1900 - 2020 An Inconsistent Relationship Before The Liberating 1960s CRESTMONT RESEARCH: FINANCIAL MARKET AND ECONOMIC RESEARCHSTOCK MARKETINTEREST RATESECONOMYBOOKS VIDEOSFAQSABOUT Crestmont Research develops provocative insights on the financial markets, including the stock market, interest rates, and investment philosophy. The research focuses on the drivers and characteristics of secular stock market cycles, the impact of the inflation rate and interest rates on the stock and bond markets, and a conceptualapproach
ABOUT CRESTMONT RESEARCH: FINANCIAL MARKET AND ECONOMIC Crestmont Research, LLC develops provocative insights on the financial markets and provides financial market education services. Crestmont’s financial market education services and edutainment presentations can be developed for online, on-demand, or in-person delivery. Crestmont Research was founded by Ed Easterling, who is theauthor of
RECENT ADDITIONS: CRESTMONT RESEARCH As information is added to the site, this page will list the significant additions and changes for returning visitors to quickly identify the new information. New developments are expected to be included periodically. Suggestions for new or expanded research initiatives are welcomed at: Info CrestmontResearch.com, or viathe Contact Form.
STOCK MARKET: SECULAR CYCLES, P/E, AND MARKET VOLATILITY P/E is the pure measure of the stock market valuation level, especially when it is normalized for the business cycle. Dividend yield, directly related to P/E, is a confirming measure that helps to qualify distortions in reported P/Es. The inflation rate is the primary driver of secular stock market cycles. INTEREST RATES: HISTORICAL RATES, INFLATION, AND BOND LADDERS Today we understand that interest rates have a strong fundamental relationship with inflation, a relationship that is expected to generate prompt interest rate adjustments when the rate of inflation changes. Prior to the mid-1960s, the relationship was much less consistent. As a result, the validity of interest rate-relatedanalyses prior to
ROLLING 10 -YEAR STOCK MARKET RETURN -10%-5% 0% 5% 10% 15% 20% 1909 1923 1937 1951 1965 1979 1993 2007 2021 P/E Increase P/E Decrease Dividend Yield EPS Growth S&P 500:Annualized
CRESTMONT RESEARCH
Page 3 of 22 The peak for P/E generally occurs at very low and stable rates of hen inflation inflation. W falls into deflation, earnings (the denominator for P/E) begins to decline on a reported basis PERCENTAGE POSITIVE AND NEGATIVE DAYS ACROSS VARIOUS 50+ YEARS 1950–2020 Up Days % 53.8% Down Days % 46.2% DECADES 1970s 1980s 1990s 2000s 2010s 2020s Up Days % 51.3% 53.0% 53.7% 52.3% 54.9% 57.3% Down Days % 48.7% 47.0% 46.3% 47.7% 45.1% 42.7% SECULAR BEAR BULL 1966–1982 1983–1999 P/E RATIO VS. DIVIDEND YIELD The dividend yield of the stock market is relatively low by historical standards. Why? There are two reasons. Many studies present the first reason: corporations are paying a smaller percent of earnings in dividends. Historically, over the past century, the dividend payout ratio has averaged 35% to 60% of earnings. Today, the average payout ratio is near the low end of that range. The second INTEREST RATES & INFLATION: 1900 Copyright 2003-2021, Crestmont Research (www.CrestmontResearch.com) INTEREST RATES & INFLATION: 1900 - 2020 An Inconsistent Relationship Before The Liberating 1960s ABOUT CRESTMONT RESEARCH: FINANCIAL MARKET AND ECONOMIC Crestmont Research, LLC develops provocative insights on the financial markets and provides financial market education services. Crestmont’s financial market education services and edutainment presentations can be developed for online, on-demand, or in-person delivery. Crestmont Research was founded by Ed Easterling, who is theauthor of
UNEXPECTED RETURNS: A COURSE OF INSIGHTS Unexpected Returns: A Course of Insights is a complimentary online, on-demand video-based presentation series delivered by Ed Easterling that discusses key concepts from his book Unexpected Returns.. He combines the teaching style from his experience as an Adjunct Professor with the edutainment style from his ongoing experience as anindustry speaker.
STOCK MATRIX OPTIONS Stock Matrix Options. Returns depend upon the starting and ending point. This series of charts present the compounded annual return for an investor starting during any year since 1900 and ending with any subsequent year. The versions presented reflect those for taxpayers (i.e., individuals, trusts, etc.) and for tax-exempt or tax-deferred UNEXPECTED RETURNS: KEY CONCEPTS Unexpected Returns: A Course of Insights is an online, on-demand video-based presentation series delivered by Ed Easterling that discusses key concepts from his book Unexpected Returns.. He combines the teaching style from his experience as an Adjunct Professor with the edutainment style from his ongoing experience as an industryspeaker.
CRESTMONT RESEARCH
4 result, those companies can have faster earnings growth than the U.S. economy does as a whole. Figure 3. Earnings & Economic Growth That would be true for a single company with lots of emerging-marketbusiness, but for
CRESTMONT RESEARCH SECULAR STOCK MARKET CYCLE DASHBOARD CRESTMONT RESEARCH SECULAR STOCK MARKET CYCLE DASHBOARD 0 5 10 15 20 25 30 35 40 45 50 1900 1910 19201930 1940 1950 1960 1970 1980 1990 2000 2010 2020 Copyright 2004FINANCIAL PHYSICS
PREFACE This presentation introduces Crestmont’s core "Financial Physics" model. The model represents a framework to understand the relationship of the economy ('the source of wealth') and the equity markets ('the measure ofCRESTMONT RESEARCH
Page 3 of 10 Saut’s secular bull green shoots are still developing roots. Nonetheless, chart does his lead the observer to hope that the right margin of the chart willfill with rising green lines.CRESTMONT RESEARCH
Page 3 of 3 CONCLUSION Today’s P/E is 39.4; the stock market remains in secular bear market territory—clearly above the mid-range of fairvalue assuming a
GDP REAL GROWTH BY DECADE gdp gdp gdp popu- gdp per by decade nominal real inflation lation capita 1900s 5.3% 3.9% 1.4% 1.9% 1.9% 1910s 10.0% 2.9% 7.1% 1.5% 1.4% 1920s 3.1% 3.4%-0.4% 1.5% 1.9% CRESTMONT RESEARCH: FINANCIAL MARKET AND ECONOMIC RESEARCHSTOCK MARKETINTEREST RATESECONOMYBOOKS VIDEOSFAQSABOUT Crestmont Research develops provocative insights on the financial markets, including the stock market, interest rates, and investment philosophy. The research focuses on the drivers and characteristics of secular stock market cycles, the impact of the inflation rate and interest rates on the stock and bond markets, and a conceptualapproach
ABOUT CRESTMONT RESEARCH: FINANCIAL MARKET AND ECONOMIC Crestmont Research, LLC develops provocative insights on the financial markets and provides financial market education services. Crestmont’s financial market education services and edutainment presentations can be developed for online, on-demand, or in-person delivery. Crestmont Research was founded by Ed Easterling, who is theauthor of
RECENT ADDITIONS: CRESTMONT RESEARCH As information is added to the site, this page will list the significant additions and changes for returning visitors to quickly identify the new information. New developments are expected to be included periodically. Suggestions for new or expanded research initiatives are welcomed at: Info CrestmontResearch.com, or viathe Contact Form.
STOCK MARKET: SECULAR CYCLES, P/E, AND MARKET VOLATILITY P/E is the pure measure of the stock market valuation level, especially when it is normalized for the business cycle. Dividend yield, directly related to P/E, is a confirming measure that helps to qualify distortions in reported P/Es. The inflation rate is the primary driver of secular stock market cycles. INTEREST RATES: HISTORICAL RATES, INFLATION, AND BOND LADDERS Today we understand that interest rates have a strong fundamental relationship with inflation, a relationship that is expected to generate prompt interest rate adjustments when the rate of inflation changes. Prior to the mid-1960s, the relationship was much less consistent. As a result, the validity of interest rate-relatedanalyses prior to
UNEXPECTED RETURNS: KEY CONCEPTS Unexpected Returns: A Course of Insights is an online, on-demand video-based presentation series delivered by Ed Easterling that discusses key concepts from his book Unexpected Returns.. He combines the teaching style from his experience as an Adjunct Professor with the edutainment style from his ongoing experience as an industryspeaker.
CRESTMONT RESEARCH
Page 4 of 22 forecast earnings, (b) net earnings or operating earnings, and (c) reported earnings or business cycle-adjusted earnings. (a) The historical averag e for the normalized P/E is near 16 based upon reported ten- PERCENTAGE POSITIVE AND NEGATIVE DAYS ACROSS VARIOUS 50+ YEARS 1950–2020 Up Days % 53.8% Down Days % 46.2% DECADES 1970s 1980s 1990s 2000s 2010s 2020s Up Days % 51.3% 53.0% 53.7% 52.3% 54.9% 57.3% Down Days % 48.7% 47.0% 46.3% 47.7% 45.1% 42.7% SECULAR BEAR BULL 1966–1982 1983–1999 P/E RATIO VS. DIVIDEND YIELD The dividend yield of the stock market is relatively low by historical standards. Why? There are two reasons. Many studies present the first reason: corporations are paying a smaller percent of earnings in dividends. Historically, over the past century, the dividend payout ratio has averaged 35% to 60% of earnings. Today, the average payout ratio is near the low end of that range. The second INTEREST RATES & INFLATION: 1900 Copyright 2003-2021, Crestmont Research (www.CrestmontResearch.com) INTEREST RATES & INFLATION: 1900 - 2020 An Inconsistent Relationship Before The Liberating 1960s CRESTMONT RESEARCH: FINANCIAL MARKET AND ECONOMIC RESEARCHSTOCK MARKETINTEREST RATESECONOMYBOOKS VIDEOSFAQSABOUT Crestmont Research develops provocative insights on the financial markets, including the stock market, interest rates, and investment philosophy. The research focuses on the drivers and characteristics of secular stock market cycles, the impact of the inflation rate and interest rates on the stock and bond markets, and a conceptualapproach
ABOUT CRESTMONT RESEARCH: FINANCIAL MARKET AND ECONOMIC Crestmont Research, LLC develops provocative insights on the financial markets and provides financial market education services. Crestmont’s financial market education services and edutainment presentations can be developed for online, on-demand, or in-person delivery. Crestmont Research was founded by Ed Easterling, who is theauthor of
RECENT ADDITIONS: CRESTMONT RESEARCH As information is added to the site, this page will list the significant additions and changes for returning visitors to quickly identify the new information. New developments are expected to be included periodically. Suggestions for new or expanded research initiatives are welcomed at: Info CrestmontResearch.com, or viathe Contact Form.
STOCK MARKET: SECULAR CYCLES, P/E, AND MARKET VOLATILITY P/E is the pure measure of the stock market valuation level, especially when it is normalized for the business cycle. Dividend yield, directly related to P/E, is a confirming measure that helps to qualify distortions in reported P/Es. The inflation rate is the primary driver of secular stock market cycles. INTEREST RATES: HISTORICAL RATES, INFLATION, AND BOND LADDERS Today we understand that interest rates have a strong fundamental relationship with inflation, a relationship that is expected to generate prompt interest rate adjustments when the rate of inflation changes. Prior to the mid-1960s, the relationship was much less consistent. As a result, the validity of interest rate-relatedanalyses prior to
UNEXPECTED RETURNS: KEY CONCEPTS Unexpected Returns: A Course of Insights is an online, on-demand video-based presentation series delivered by Ed Easterling that discusses key concepts from his book Unexpected Returns.. He combines the teaching style from his experience as an Adjunct Professor with the edutainment style from his ongoing experience as an industryspeaker.
CRESTMONT RESEARCH
Page 4 of 22 forecast earnings, (b) net earnings or operating earnings, and (c) reported earnings or business cycle-adjusted earnings. (a) The historical averag e for the normalized P/E is near 16 based upon reported ten- PERCENTAGE POSITIVE AND NEGATIVE DAYS ACROSS VARIOUS 50+ YEARS 1950–2020 Up Days % 53.8% Down Days % 46.2% DECADES 1970s 1980s 1990s 2000s 2010s 2020s Up Days % 51.3% 53.0% 53.7% 52.3% 54.9% 57.3% Down Days % 48.7% 47.0% 46.3% 47.7% 45.1% 42.7% SECULAR BEAR BULL 1966–1982 1983–1999 P/E RATIO VS. DIVIDEND YIELD The dividend yield of the stock market is relatively low by historical standards. Why? There are two reasons. Many studies present the first reason: corporations are paying a smaller percent of earnings in dividends. Historically, over the past century, the dividend payout ratio has averaged 35% to 60% of earnings. Today, the average payout ratio is near the low end of that range. The second INTEREST RATES & INFLATION: 1900 Copyright 2003-2021, Crestmont Research (www.CrestmontResearch.com) INTEREST RATES & INFLATION: 1900 - 2020 An Inconsistent Relationship Before The Liberating 1960s STOCK MATRIX OPTIONS Stock Matrix Options. Returns depend upon the starting and ending point. This series of charts present the compounded annual return for an investor starting during any year since 1900 and ending with any subsequent year. The versions presented reflect those for taxpayers (i.e., individuals, trusts, etc.) and for tax-exempt or tax-deferred UNEXPECTED RETURNS: KEY CONCEPTS Unexpected Returns: A Course of Insights is an online, on-demand video-based presentation series delivered by Ed Easterling that discusses key concepts from his book Unexpected Returns.. He combines the teaching style from his experience as an Adjunct Professor with the edutainment style from his ongoing experience as an industryspeaker.
ROLLING 10 -YEAR STOCK MARKET RETURN -10%-5% 0% 5% 10% 15% 20% 1909 1923 1937 1951 1965 1979 1993 2007 2021 P/E Increase P/E Decrease Dividend Yield EPS Growth S&P 500:Annualized
CRESTMONT RESEARCH SECULAR STOCK MARKET CYCLE DASHBOARD CRESTMONT RESEARCH SECULAR STOCK MARKET CYCLE DASHBOARD 0 5 10 15 20 25 30 35 40 45 50 1900 1910 19201930 1940 1950 1960 1970 1980 1990 2000 2010 2020 Copyright 2004CRESTMONT RESEARCH
4 result, those companies can have faster earnings growth than the U.S. economy does as a whole. Figure 3. Earnings & Economic Growth That would be true for a single company with lots of emerging-marketbusiness, but for
COMPONENTS OF RETURN There are only three components (excluding transaction costs and expenses) to the total return from the stock market: dividend yield, earnings growth, and change in the level of valuation (P/E ratio). To assess the potential returns from stocks for the next decade, this analysis presents the total return and its components for every ten-year period since 1900.FINANCIAL PHYSICS
PREFACE This presentation introduces Crestmont’s core "Financial Physics" model. The model represents a framework to understand the relationship of the economy ('the source of wealth') and the equity markets ('the measure ofCRESTMONT RESEARCH
Page 3 of 10 Saut’s secular bull green shoots are still developing roots. Nonetheless, chart does his lead the observer to hope that the right margin of the chart willfill with rising green lines. GDP REAL GROWTH BY DECADE gdp gdp gdp popu- gdp per by decade nominal real inflation lation capita 1900s 5.3% 3.9% 1.4% 1.9% 1.9% 1910s 10.0% 2.9% 7.1% 1.5% 1.4% 1920s 3.1% 3.4%-0.4% 1.5% 1.9%CRESTMONT RESEARCH
Page 3 of 3 CONCLUSION Today’s P/E is 39.4; the stock market remains in secular bear market territory—clearly above the mid-range of fairvalue assuming a
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FINANCIAL MARKET AND ECONOMIC RESEARCH Crestmont Research develops provocative insights on the financial markets, including the stock market, interest rates, and investment philosophy. The research focuses on the drivers and characteristics of secular stock market cycles, the impact of the inflation rate and interest rates on the stock and bond markets, and a conceptual approach toward investment strategy that is applicable to the currentmarket environment.
NOTE: CYPRESS HOUSE PUBLISHED BOTH OF ED EASTERLING’S BOOKS: _UNEXPECTED RETURNS_ AND _PROBABLE OUTCOMES_. THE PUBLISHER IS OFFERING TO DIRECTLY SELL FULL CASE BOXES OF EACH BOOK FOR $70, WHICH INCLUDES SHIPPING. ORDERS EXCEEDING TEN (10) BOXES OF EITHER OR BOTH TITLES ARE 50% OFF IF SHIPPED BY UPS. THIS IS A GREAT OPPORTUNITY TO SHARE ONE OR BOTH BOOKS WITH CLIENTS OR FRIENDS. FOR DETAILS, CLICKHERE .
RESEARCH OBJECTIVES
The objective of the research and its publication on this site is to present rational perspectives based upon a diligent analysis of historical data. Through understanding and developing perspectives on that data, vital new knowledge is formulated. Armed with that knowledge, we can then start to make informed decisions. Crestmont’s research is intended to be observation-based rather than prediction-oriented. Its purpose is to provide information and perspectives to assist in rational decision-making. The research does not provide predictions or recommendations on investment alternatives, although you may find its implications for investment strategy quitecompelling.
STOCK MARKET
The overall market is highly volatile and affected by generally long secular cycles. You may wonder _is it worth the risk?_. Further, returns in the stock market depend upon the level of and trend for the inflation rate. In this section, you’ll gain insights toward the obvious question: _what can we expect from here?_. Ten, twenty, or even thirty years is not long enough to ensure successful returns in the stock market. Current and recent levels for the P/E ratio suggest that expected returns will be disappointing for many investors. Pundits are professing, _“Returns will improve when the economy begins to recover!”_ But hope is not a strategy. Though traditional wisdom relates P/E ratios to interest rates, that relationship works only in periods of positive inflation. With the risk of higher inflation or deflation looming on the horizon, the analysis titled _“P/E Ratios & Inflation”_ will clarify that P/E’s are driven by inflation. As well, see _“Stock Market Returns & Volatility”_ for a surprisingly strong relationship between the level of volatility in the stock market and its direction. “Financial Physics” represents the interconnected relationships among several key elements in the economy and the financial markets–relationships that determine the stock market’s overall direction. This presentation will provide a highly provocative and insightful perspective on the relationship of the economy (the source of wealth) and the equity markets (the measure of equity wealth). Whereas other presentations present analyses of historical data to provide perspectives, this analysis is dedicated to exploring the fundamental factors and economic relationships that drive trends and valuations in the financial markets. Harry Markowitz, Nobel Prize co-recipient for Modern Portfolio Theory and the Capital Asset Pricing Model, published “Portfolio Selection” in _The Journal of Finance_ during 1952. He led with a critical point: _“The process of selecting a portfolio may be divided into two stages. The first stage starts with observation and experience and ends with beliefs about the future performances of available securities. The second stage starts with the relevant beliefs about future performances and ends with the choice of the portfolio. This paper is concerned with the second stage.”_ As Markowitz emphasizes, it is the investor’s responsibility to use _“observation and experience”_ to develop _“beliefs about the future performances.”_ Crestmont’s research is developed to provide practical insights for investors who don’t have 75 to 100 years to wait for historical average returns.INTEREST RATES
Short-term interest rates (one year or less) are generally determined by the Federal Reserve; long-term interest rate yields are driven by the inflation rate or inflation expectations. The relationship between interest rates and inflation was not evident before the 1960’s. Current research now suggests implications for the future. Though there are occasional, very limited periods that break the general rule, Crestmont Research’s The 6/50 Rule states: _“Interest rates will change by at least 50 basis points (0.5%) within the next 6 months.”_ There’s almost 50 years of history–virtually without exception–in our favor. Chances are that the change will be a good bit more than that, too. See the details and charts titled “The 6/50 Rule.”ECONOMY
Uncertainties about the economy pose a unique crossroads for the current decade and beyond. Further research and analysis is needed to assess conventional wisdom for myth and insight.BOOKS
UNEXPECTED RETURNS:
UNDERSTANDING SECULAR STOCK MARKET CYCLES Before you read any how-to investment books or seek financial advice, read _Unexpected Returns_, the essential resource for investors and investment professionals who want to understand how and why the financial markets are not the same now as they were in 1980s and 1990s. In addition to explaining the fundamentals, this award-winning book takes you on a graphic journey through seasons of the market, tying together economics and finance to explain the stock market’s cycles. Using comprehensive full-color charts and graphs, it offers an in-depth exploration of what has changed over the past five years – and what you can do about it to avoid disappointment with your investments. This unique combination of investment science and investment art will enable you to differentiate between irrational hope and a rational view of the current financial markets. Based on years of meticulous research, _Unexpected Returns_ provides the sensible conclusions that will drive your future investment choices and give you the confidence to rely on your investment outlook, whatever your financial strategy.PROBABLE OUTCOMES:
SECULAR STOCK MARKET INSIGHTS _Probable Outcomes_ continues the Crestmont Research tradition of extensive full-color charts and graphs that enable investors and advisors to differentiate between irrational hope and a rational view of the stock market. This book’s empowering insights prepare you to take action during the current period of below-average returns. The unique combination of investment science and investment art explores the market from several perspectives and addresses the significant implications for a broad range of investors. Beyond concepts, Ed Easterling delivers a dramatic analysis of the likely course for the stock market over the 2010 decade. Investors and advisors will benefit from this timely outlook and its message of reasonable expectations and value-added investing. This essential resource offers a compelling understanding of the key fundamental principles that drive the stock market. Derived from years of meticulous research, _Probable Outcomes_ provides sensible conclusions that will guide your future investment choices and allow you to invest with confidence, whatever yourfinancial strategy.
ABOUT
Crestmont Research primarily develops and publishes research in the form of charts and graphs to provide investors and market spectators with poignant perspectives on the financial markets. The objective is to impart insights about the reality of the markets. Occasionally, articles are written when graphics would not be appropriate or when requested by specific publications or clients. Crestmont has retained all rights to the following articles and welcomes inquiries regarding publication in periodicals and newsletters. We solicit your insights, whether supporting or contradicting our presentations. They will assist in furthering our research. Contact us at InfoCrestmontResearch.com, or use this contact form .FEATURED ITEMS
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OUTLOOK: HOW CRESTMONT RESEARCH FORECASTS The first principle of investing is that “past performance is not indicative of future results.” Yet, many in the investment industry and investor community rely heavily on the rear-view mirror. Product summaries boast returns for the past 1, 3, 5, and 10 years. Some investors buy currently hot stocks as they cull losers without much regard for their potential. Too often, it’s human nature for us to anchor on yesterday’s trend to extrapolate tomorrow’s outcome. The most common misunderstanding about Crestmont Research is that its articles and charts follow that industry norm. But, Crestmont’s identification of secular stock market cycles is not based upon recent eras of strong or weak returns. Instead, Crestmont is keenly focused on the outlook for most investors’ horizons—periods of five to twenty years. Secular calls are driven by current conditions and outlook, not by past trends. This two-page article describes the key principles underlying Crestmont’s research and related charts and writings. It closes with links to selected pieces that epitomize Crestmont’s work.RECENT
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THE BIG SHIFT: A SECULAR REALIGNMENT OF PROFITS AND P/E Why are reported profits for the S&P 500 Index so much higher than normalized profits? Although implied earnings per share (EPS) under Shiller’s CAPE P/E10 and Crestmont’s normalized P/E are expected to be near $90 in 2019, the current forecast for as-reported GAAP EPSis $165.
Why are wages relatively stagnant overall (and declining as a percentage of the economy) while corporate profits increase as apercentage of GDP?
Why does the stock market appear so overvalued to many analysts when, in reality, it may be near fairly valued? In summary, (1) increased profit margins are the result of slower economic growth; (2) the related increase in EPS will be offset by a lower market P/E and thus will not provide stock market gains; and (3) future returns will remain muted despite an apparently lower level forP/E in the future.
_NOTE: the material in this article is so provocative that the concepts are not affecting other material on the website at thistime._
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The entire content of Crestmont's website, including but not limited to charts, graphs, analyses, etc., is subject to copyright with all rights reserved. All material available on this site may be used or referenced if the user references and acknowledges Crestmont Research and our website address (i.e. “Copyright 2021, www.CrestmontResearch.com” or “as presented by Crestmont Research (www.CrestmontResearch.com), …”). Please send a copy of the published material to InfoCrestmontResearch.com to assist in further developing the research. All property rights to Crestmont's research shall remain with Crestmont.Notifications
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