Registered Investment Adviser Caleb Lawrence
The European Union dodges a bullet with Macron’s election win in France, though both primary political parties got left out in the cold, so it could well prove a hollow victory. The major averages begin the week about even, unable to follow Asia’s lead higher on little domestic news.
Despite the endless mainstream media chatter about how great things are valuations and debt continue to grind higher becoming ever larger accidents waiting to happen in the process. Friday’s Consumer Credit report beat expectations with a 16.4 billion Dollar gain in March. Non-revolving debt, essentially student and auto loans jumped 14.5 billion, while revolving or credit card debt gained 2 billion. Data on first quarter outstanding balances shows student loans reaching 1.44 trillion, auto loans at 1.12 trillion, and credit card debt at just over a trillion. Many push this data as proof positive of the economy’s strength. Yet charge-off and delinquency rates are rising rapidly nearly across the board with various debt types. While they have yet to reach alarming levels, they are moving in the wrong direction at an accelerating rate. A study by Northwestern Mutual found that your average American carried $37,000 in non-mortgage debt, and that Americans with debt spent 45% of their income on debt service. It amazes me that modern economists and policy makers measure economic success based on debt growth and levels, primarily because their ivory tower models tell them that debt and deficits don’t matter because both boost personal consumption and spending. The 2007-2009 financial crisis caused some 8-million foreclosures, bankruptcies nearly doubled between 2007-2009 and the 3-year period saw 2.8 million filings. Add Stockton, Detroit and most recently Puerto Rico along with many other entities who filed bankruptcy in the post crisis period and these people still claim with a straight face that deficits and debt don’t matter.