The Market Bull – January 9, 2020
With the confrontation with Iran fading into the distance the major averages continue to rise closing with modest gains to reach new record highs.
Industry Gross Domestic Product or GDP rose 2.06% on a real or inflation adjusted basis in the 3rd quarter. Professional and business services led with a .68% gain followed by manufacturing +.47% and retail trade up .43% to round out the top three. At the other end of the scale finance/insurance/real estate slipped .31%, utilities dipped .26% and construction dropped .09%. The trade deal with China is still on the table, though talk on the subject has gone quiet, so will see. Also of concern to various analysts is the idea that Trump will decide tariffs and trade sanctions are a viable policy tool and apply them to other trading partners in Europe and elsewhere, something that has already been done to a degree. Just not to the extent it has been with the Chinese.
While it’s a good bet that the next financial crisis will be primarily driven by corporate or business debt as they have ballooned over the last 10-years as corporate America sought to enrich its executives and cover up earnings and revenue shortfalls. Consumer credit will also play a role, albeit diminished this time around despite record credit card, auto and student loans. Another factor in this mix is the so called shadow banking sector or transactions between private parties that receive little, if any, regulatory scrutiny and by implication remain difficult to quantify accurately. Also known as the private debt market it too has grown dramatically in the post crisis period and has in fact tripled in the last few years to a not inconsequential 1.2 trillion per recent estimates. Much of this private debt is in the form of Collateralized Loan Obligations or CLO’s. It should be noted that the history of “C” something “O” engineered financial products has been largely a disaster. The other primary category of debt is direct loans to small and medium sized companies. The excess credit party will continue until one day it can’t, just like last time. The trick is figuring out when and how, no easy task even with the benefit of hindsight as I looked very hard at the 2007-2009 period to try and determine what the proverbial trigger was, to no avail. In the meantime, party like it’s 1999.
Standard and Poors 500 Index closed at: 3,274.70 up 21.65
NASDAQ finished the day: 9,203.43 up 74.18
Gold ended trading at: $1,551.60 down $8.60