Economic News 1/3/18

Latest Data

Longest Bull Market Since WW 2

Has Monetary Policy Been Too Easy

Indicators Are Mixed

Liquidity, Margin Debts, and Q

Positive Analysis

Looking Ahead

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8/22/18 Please link and share.

Latest: 'The recession has already started':
David Rosenberg on the U.S. economy 6/17/19

Expect a US recession by mid-2020, strategist Sri Kumar says 8/19/19

Has Monetary Policy Been Too Easy

"Larry Summers is choosing to write op-eds claiming that Janet Yellen could not have left Jerome Powell with a better legacy. Nobody seems to have told Summers that in 2017, Yellen's Fed did not alter the Fed's interest rate path. It failed to do so despite the strong boost that a close-to-full-employment U.S. economy was receiving from the combination of a 25 percent increase in U.S. equity prices, a 10-percent dollar depreciation and the large unfunded Trump tax cut. In all probability, this has left the Fed well behind the interest rater rising curve, which realization is now

roiling the U.S. bond market. More disturbingly yet, no one seems to have told Summers that by keeping monetary policy too low for too long, the Yellen Fed, along with the world's other major central banks, have created a global financial market bubble of epic proportions. This bubble is to be seen in global equity valuations at lofty levels experienced only three times in the last 100 years, in government bond yields at historic lows, and in serious credit market mispricing." 2/5/18 Source

Positive Analysis

Profits Up, Market Up

Why The Bull Market Can Continue

Corporate Debt is Manageable

Source

New Tax May Benefits Many Corporations

source Companies With Deferred Tax- Liabilities-Big Tax Reform Winners

FED Printing Worked
US Recovered from Great Recession

FED Bought Much of Great Recession Debt
Softening Blow to those Holding Debt

Most Countries Borrow More

Source The Economist

All US Families Have More Wealth

World Wealth is Up

Looking Ahead

1. FED Correct to Tighten?

Crescat Capital Quarterly Investor Letter 1/18

2. Train Crash Debt Series 5/13/18

1. Credit-Driven Train Crash
2. Train Crash Preview
3. High Yield Train Wreck
4. The Italian Trigger
5. Debt Clock Ticking
6. The Pension Train Has No Seat Belts
7. Europe Has Train Wrecks, Too
8 Unfunded Promises
9. The Debt Train Will Crash

"Huston," We have two related problems.

Corporate debt and especially high-yield debt issuance has exploded since 2009.

Tighter regulations discouraged banks from making markets in corporate and HY debt.

Both are problems but the second is worse. Experts tell me that Dodd-Frank requirements have reduced major bank market-making abilities by around 90%. For now, bond market liquidity is fine because hedge funds and other non-bank lenders have filled the gap. The problem is they are not true market makers. Nothing requires them to hold inventory or buy when you want to sell. That means all the bids can “magically" disappear just when you need them most. These “shadow banks" are not in the business of protecting your assets. They are worried about their own profits and those of their clients.

A “new class" of investors he mentions are corporate bond ETF and mutual fund shareholders. These funds have exploded in size (high yield alone is now around $2 trillion) and their design presumes a market with ample liquidity. We barely have such a market right now, and we certainly won’t have one after rates jump another 50 - 100 basis points.

To make matters worse, many of these lenders are far more leveraged this time. In fact, 77% of corporate bonds that are leveraged are what’s known as “covenant-lite." [where] the borrower doesn’t have to repay by conventional means. ... [and] force the lender to take more debt. Normally [higher rates] this would be the borrowers’ problem, but covenant-lite lenders took it on themselves

The US federal government differentiates between Gross Debt issued by the US Treasury and Net Debt held by the public.

The numbers on Gross Debt are published by the US Treasury here.

Numbers on various categories of federal debt, including Gross Debt, debt held by federal government accounts, debt held by the public, and debt held by the Federal Reserve System, are published every year by the Office of Management and Budget in the Federal Budget in the Historical Tables as Table 7.1 — Federal Debt at the End of the Year. The table starts in 1940. You can find the latest Table 7.1 in here.

1. Monetized debt (blue), i.e., federal debt bought by the Federal Reserve System

3. Other debt (green), i.e., debt in public hands, including foreign governments.