This week we look at another except from Ed Easterling’s gonzo book on stock market return projections, called Probable Outcomes. This section is entitled “Game Changer,” and it is that and more. (Again, thanks to Ed for letting us read his work!)
“Game Changer” is a thought-provoking, somewhat detailed analysis, with two major surprises. The first is that GDP growth was well below average last decade (a trend that could continue this decade); and second, slowing growth has a substantial negative effect on valuations (P/E ratios). This ties well into my own Endgame and suggests implications about slower growth, etc. (similar to what I project from work of my own). Slower growth drives P/Es lower (even without higher inflation, or deflation) and could drop the market by a third or so relative to “normal” cycles.
Ed and I talk about this a lot, and agree that readers must understand Endgame to appreciate how significant “Game Changer” can be. Probable Outcomes complements Endgame with specific implications for investors and policy makers who look to the stock market for returns over this decade.
Just another quick plug for Endgame from a review on Amazon:
“Endgame: ‘The final stages of an extended process...’ The aptly chosen title for Mauldin's new book reflects the vision that he started sharing over a decade ago when he foresaw the Muddle Through Economy (he repeatedly warned about Muddle Through in his free weekly newsletter at Thoughts from the Frontline and in his best-selling books).
“In Endgame, Mauldin and Tepper detail the history of events that layered increasing debts on an underperforming economy. Their analysis is not limited to the U.S., but rather walks around the world highlighting a global issue. Mauldin again demonstrates his laudable ability to synthesize vast amounts of information into relevant nuggets. The first half of Endgame lays the foundation brick-by-brick, including a look at the basics of economics and recent research to understand the situation. The second half of the book proceeds country by country laying out the common and unique problems that they confront. It exposes a world of vulnerability, but not one that is hopelessly destined. Mauldin and Tepper are optimists, and present a call to action that can result in a successful endgame.
“Once again, as another decade starts, Mauldin assembles a plethora of data and charts to deliver information that investors, policy makers, and involved citizens need to better understand and act upon. From the classic principles of Minsky to the modern groundbreaking research of Reinhart and Rogoff, Mauldin explains clearly the credible scenario that the burdens from mountains of debt create another decade or longer of Muddle Through as a process rather than an event. Passage through the vestibule of the endgame requires restitution in the forms of deflation, inflation, volatility, and slow economic growth. Despite the headwinds, endgame need not be game-over – which appears to be Mauldin's personal game plan for his new book. He includes writings to his children that their future can be much brighter than the current period that we confront. Knowledge is power and you'll find both in Endgame.”
Your writing away analyst,