DumbWealth provides daily (pretty much) visual insights into the markets and economy.
Happy American Thanksgiving!
Insight 1: Investors beware. The following chart shows the total value of stocks with a price-to-sales ratio over 20 times. The two spikes - one starting in 1999 and the other in 2019 - are quite clear indicators of a market bubble. The last spike ended in tears, as the most overpriced stocks fell around 80%. What will the current spike bring?
Consider what a price-to-sales ratio of 20 actually means. Scott McNealy, former CEO of Sun Microsystems, said it best during a 2002 interview reflecting on the dot com bubble and bust:
“At 10-times revenues, to give you a 10-year payback, I must pay you 100% of revenues for 10-straight years in dividends. That assumes I can get that by my shareholders. It also assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that expects you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10-years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those underlying assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?”
Insight 2: Credit growth relative to GDP (credit impulse) in China and the G3 has plummeted. The direction of this indicator may suggest a coming global slowdown in industrial activity.
The first chart shows how China’s credit impulse is correlated to the price of industrial commodities relative to precious metals. The second chart shows how the G3 credit impulse is correlated to global manufacturing activity.
Insight 3: Canada has over 1 million job vacancies and a 6% vacancy rate! Both of these figures have doubled in 2021 alone.
The second chart below breaks down the job vacancy rate by industry. The accommodations and food services industry is the hardest hit, as many workers have abandoned the sector for a variety of reasons (forced to change industries due to lockdowns, low compensation, poor treatment by management and customers, retirement, etc.).