The Market Bull – February 19, 2019
Walmart a proxy for the American consumer beat expectations and cast shade over the fairly weak retail sales figures of late. One of the few bright spots in what is one of the weakest earnings reporting seasons in some time. The major averages shrugged off their early losses on the news, closing with small gains. Another round of talks with the Chinese to avert a last-minute trade war, marks seven on the subject. With Trump making conciliatory noises and walking back his line in the sand regarding the imposition of 25% tariffs on almost all Chinese imports perhaps an agreement will be reached before the March 1st deadline, but I’m not holding my breath. In related news 25% tariffs on European cars and parts took another step closer to reality, so it would seem that the trade war remains alive and well, at least for now.
With record levels of debt, stagnant real wages and sharply rising housing costs it’s no surprise that delinquencies are surging as well. Student loan delinquencies hit a record 166.4 billion in the 4th quarter of 2018, per a piece in Bloomberg.
Record student loan delinquencies are a direct byproduct of the student loan bubble that I’ve been warning about for years. Since 2006, total outstanding U.S. student loans surged by over 200% from $521 billion to $1.57 trillion:
Rising student and auto loan delinquencies are very concerning, especially due to the fact that they are occurring during an economic expansion in which the unemployment rate is at a multi-decade low of just 4%. In the next recession, which is a more imminent threat than most people realize, I expect excessive debt loads, led by corporate, student and auto loans to result in a significant recession and repricing of real assets substantially lower.
Standard and Poors 500 Index closed at: 2,785.81 up 10.21
NASDAQ finished the day: 7,503.22 up 30.81
Gold ended trading at: $1,342.70 up $20.60