BULLION VAULT
Combine the prospects of vast central-bank easing with possible fireworks in the Persian Gulf…and you have your answer.
What about the bond market?
The bellwether 10-year Treasury has slipped to 1.98%…its lowest point since the 2016 election.
And so the infinitely expanding gulf between stock market and bond market widens further yet.
One vision is bright, cheery, trusting. The other is dark, dour…and morose.
One of these markets will be proven right. One will be proven wrong.
Our money is on the bond market.
Meantime, it is 10 years into the present economic “expansion.” Next month will establish a record.
How is the business at all sustainable?
Corporations have loaded themselves to the gunwales with cheap debt – cheap debt coming by way of the Federal Reserve.
First-quarter nonfinancial corporate debt increased to $9.93 trillion. That is a record.
And this we learn from the Treasury Department:
Today’s nonfinancial corporate debt-to-GDP ratio is the highest since 1947…when records began.
And here we spot a straw swaying menacingly in the wind…
Fitch informs us nearly $10 billion of high-yield corporate bonds have already defaulted in the second quarter – double the amount of first-quarter defaults.
Warns Troy Gayeski, co-chief investment officer at SkyBridge Capital:
“Whatever the cause [of the next recession] may be, the acute point of pain will be in corporate credit.”
Depend on it.
Finally we come to the fabulously and grotesquely indebted American consumer.
Total US consumer debt notched $14 trillion in the first quarter – exceeding the roughly $13 trillion before the financial crisis.
Twenty-three per cent of Americans claim that life’s essentials – food, rent, utilities – constitute the bulk of their credit card purchases.
And 60% of Americans hold less than $1000 in savings.
How will they keep up come the next recession? How will they meet their debts?
They already groan under the load – and the economy is still expanding.
Meantime, the cost of a middle-class lifestyle has surged 30% over the past two decades.
But Pew Research reports the average American worker wields no more purchasing power today…than he did 40 years ago.
That is, he has jogged in place 40 years.
The past 10 years of central bank intervention on a grand and heroic scale have worked little benefit.
The coming recession will bring yet more intervention – on an even grander and more heroic scale.
But why should we expect it to yield any difference whatsoever?
For the overall view, we turn to Mr.Sven Henrich:
“The grand central-bank experiment of the last 10 years has ended in utter and complete failure. The games of cheap money and constant intervention that have brought you record global debt to the tune of $250 trillion and record wealth inequality are about to embark on a new round…The new global rate-cutting cycle begins anew before the last one ever ended. Brace yourselves, as no one, absolutely no one, can know how this will turn out…
“We are witnessing a historic unraveling here. Everything every central banker has uttered last year was completely wrong. Every projection they made over the last 10 years has been wrong…Why place confidence in people who are staring at the ruins of the policies they unleashed on the world and are about to unleash again?
“All the distortions of 10 years of cheap money, debt, wealth inequality, zombie companies, negative debt…will all be further exacerbated by hapless and scared central bankers whose only solution to failure is to embark on the same cheap money train again. All under the banner to ‘extend the business cycle’ at all costs. Never asking whether they should nor considering the consequences. But since they are not elected by the people and face zero consequences for failure, they don’t have to consider the collateral damage they inflict.”
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