It’s been said that the trend is your friend until it isn’t, a statement that applies to both investors and debtors. The Fed’s zero interest rate polices have encouraged all manner of speculation, much of it increasingly reckless in nature ala 2005-2007. As such it is no surprise to learn that more metrics indicating excessive leverage keep showing up. The latest measures corporate debt, as this form of debt has grown by leaps and bounds of late to fuel the earnings per share and dividend enhancement gain illusion we find compliments of, David Stockman, Barclays and others that buy backs have exceeded cash flow for two straight years. On historical basis this trend doesn’t make it to three years as leverage maxes out. Much like student loan and auto loans in the current credit binge cycle. It didn’t end well last time and it won’t end well this time either.
As I suspected economic growth will struggle to break 2% in the 3rd quarter, as per the Atlanta Fed’s latest GDP now model that shows just 1.9% growth joining the NY Fed below 2% at 1.6%, no surprises there.