The Market Bull – April 4, 2019
The major averages closed mixed on little real news today. Though the parade of dysfunctional leadership both here and abroad continues.
One of the false narratives pushed by the lamestream media after the Great Financial Crisis, or GFC, was that of deleveraging or the reduction in outstanding debt levels. Initially there was some truth to this, particularly at the consumer level after millions of bankruptcies and foreclosures pushed consumer debt levels down and reduced the homeownership rate by about 10 percentage points. Government debt ballooned in the post crisis period to fund all the bailouts. Followed by corporate debt after interest rates hit zero spawning the debt funded corporate buyback craze that continues to this day. Consumers not to be out done now have record auto, student and credit card debt. Mortgage debt on the other hand remains a little below its pre-bust peak, when you stop to consider that the homeownership rate remains some 8 percentage points below the previous peak you realize that homeowners have a higher level of aggregate debt today than the did just before the previous crisis. The really odd thing is that while most everybody agreed after the fact that excessive debt levels caused the GFC for some reason the Federal Reserve and numerous pundits decided the solution to the problems caused by excessive debt was to encourage the use of even more debt. Setting us up for a repeat. While one can argue that it is rational not to deleverage when the cost of capital is so cheap. The math is incontrovertible: The tax code encourages borrowing money (instead of using cash on hand) to repurchase shares. At the same time debt most certainly does matter especially if it is used for non-productive purposes as is most residential real estate and corporate share buy-backs. Because sooner or later the greater fool theory comes into play and it’s never “different this time”.
Standard and Poors 500 Index closed at: 2,879.39 up 5.99
NASDAQ finished the day: 7,891.78 down 3.77
Gold ended trading at: $1,297.50 up $2.20