The Market Bull – June 10, 2019
The major averages begin the week with decent gains following a resolution to the Mexican tariff issue and growing talk of lower interest rates. It would appear that the Mexican standoff had more to do with political theater, that an actual crisis as the issues had largely been resolved prior to Trump’s tariff announcement.
In the post crisis period since 2009 I have always shook my head in disbelief as the world’s central banks, including our own Federal Reserve pursued and promoted a strategy of solving the problems caused by too much debt, with even more debt. With global debt at a record 250 trillion, and record wealth and income inequality, the folly of this strategy is writ large. Constant chatter from the lamestream media about how great things are, yet never in my life have I seen so many tent cities, epidemic homelessness, while substance abuse and the opioid crisis reach levels that are difficult to even comprehend. In between the everything is just fantastic theme. We now have a growing chorus to cut interest rates spanning the globe including Europe, Asia and the Americas. With the USA seemingly bent on starting a trade war with everyone, and anyone.
Emergency level interest rates, trillions in stimulus and debt funded share buy backs have certainly created the illusion of prosperity if one doesn’t look much past stock and real estate prices. Real price discovery has disappeared along with the credibility of the world’s central banks. All that’s missing is another crisis similar to the last one, a crisis that is well and truly baked into the cake at this point. Unlike last time when the crisis was primarily driven by reckless real estate lending. This time around the 800lb Gorilla in the room will be corporate debt that was used to fund share purchases. US Non-financial corporate debt hit a record 15.2 trillion in the 4th quarter of 2018 per the Bank of International Settlements. As a percentage of Gross Domestic Product or GDP it works out to 74.4% just below the record set in Q 2, 2018 of 74.9%. This qualifies the USA for 24th place. Some other notable standouts in this category include China 21.1 trillion after their bubbelicious debt binge in the post 2007 period qualified them for the most debt ever award.
This phenomenon is global, featuring most of Europe, Asia and the Americas. When it goes, I certainly hope that it is indeed “different this time” as it is likely to make the last two booms and busts look like child’s play.
Standard and Poors 500 Index closed at: 2,886.73 up 13.39
NASDAQ finished the day: 7,823.17 up 81.07
Gold ended trading at: $1,332.80 up $3.50