The world now has many countries with debts from all sources at or above 275% of GDP. This is an unprecedented experience for which there is no comprehensive guidance from economics textbooks. Additionally the use of Quantitative Easing by Central Banks is unprecedented. In investing when risk is excessive then even if the raw results are good there may be a problem where the risk-adjusted returns are not good. To measure risk adjusted returns one could use the Sharpe ratio or else the Information ratio. The Sharpe ratio compares the ratio of risk to reward or more precisely risk to the alpha component of reward. Investors may fool themselves into thinking the highest rate of
PE10 is the best measure of fair value for stocks, although it is too cumbersome and slow to be sued as a short term or intermediate term indicator for trading purposes. Its critics like to say that it doesn’t work because. Its results don’t mesh with the National Income accounts (NIPA) because subsidiary corporation’s foreign profit not is properly accounted for in GDP. The effect of a U.S. company offloading profit offshore is that NIPA doesn’t see the foreign work done to produce a profit yet it records the profit thus it appears as a windfall increase in margins.