Summary

Professor Joel Litman stated that without a firm grasp of credit analysis, one cannot fully understand the wealth creation process as an equity investor. He went on to compare economic profit in the US and China. Valens Research Uniform Accounting analysis shows the US to be out alone in this measurement with record earnings forecasted adjusted for cost of capital. And since taxes drive economic spend and therefore economic might, and taxes are from profits not revenues, it is Joel’s view that US hegemony is guaranteed for the next 50 years. Joel maintains that each major equity market collapse was preceded by a credit crisis. Valens Custom Aggregate CDS Index shows no signs of crisis except in China. His market phase analysis placed the US in the Growth Bull Stage and therefore we have not seen the market top. Conversely, China, where revenues are impressive, but economic profit anaemic, is firmly in the Down Phase after a Double-Top. Rising rates are not a problem for the US as stocks and interest rates usually trend in the same direction over the long-term. High rates are a problem not rising rates.

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