Four Horses Short of Armageddon
Fear is everywhere.
But as the graphics below will show you, that fear is overblown, exaggerated, and mostly inaccurate:
The above chart is for the next time you’re confronted by headlines about fear of debt.
What we see from the data are slow moving curves.
So, while the fears we picked up from the crisis of 2008-2009 have been burned deeply into the psyche of the investor audience and the public in general, the facts shows debt loads, costs and outright balances all stand at levels not seen since back in the early 1980s.
That's good news, folks.
As For Skyrocketing Rates, Eh…
In a word: No.
How many years were we told rates would skyrocket as QE "burned off" over time?
And how many times did the experts say the dollar would plummet?
The majority of the 1990s was a media roasting pit for the US dollar, which was alleged to be too weak, and signposted impending doom ahead.
As for the last 10 years, well, we’ve been told the dollar is too strong, signalling impending doom ahead.
That’s just nuts.
Also, Federal debt owed to the public (currently $16.2 trillion) has been soaring by virtually any measure.
Because terrified investors who hate stocks love the safety of government bonds. It’s just that simple.
As a percent of GDP, federal debt is approaching 80%; the highest level since the early 1950s.
It’s not scary. It’s just the fear trade.
And we should expect it to continue.
It's worth noting that, contrary to what many might think, rising debt burdens have not translated into the much-feared scenario of higher interest rates.
If anything, there appears to be an inverse correlation between debt burdens and interest rates.
And There’s Lots of Net Worth Records
Folks, we are currently ABOVE trend on the annual rate of increase of household net worth.
Since the 1950's, that green line in the first graph of this set shows a steady 2.3% per year increase.
We are steadily increasing over that rate, and it appears to be accelerating.
The second graph in the set above displays the fact behind another big fear; rising debt burdens.
The reality is, thankfully, is four horses short of Armageddon.
When one compares federal debt levels to household net worth, debt has actually been declining for the past 6-7 years (see the two parallel red lines).
The current level (15%) may be high, but it's not beyond the range of believable.
So, if we all wrote a check to the government tomorrow for 15% of our net worth - a painful thought for sure, but not a killer - then our "monstrous" federal debt would disappear…entirely.
Then of course, we'd be left with the tens of trillions of dollars in government assets that are never mentioned when the experts postulate about the fear-laden debt story.
Another Parting Thought…
As rates are falling further, has anyone noticed the rapid increase in merger and buyout activity?
There is likely to be a day in the future where "debt" costs will close in on zero.
By then, a "normal P/E" for all those ugly stocks out there - shrinking in number as they may be - will be substantially higher than it is today.
It never ends.
The market will go up and the market will go down (sometimes a lot).
Just stay patient and focused as the Summer haze lies just ahead.
It’s a time for sunny beaches and potholes in the market.
But don’t sweat it.
In my 37 summers in this business - many of which had dreaded "swoons" – in every instance they were at lower prices than we are now.
That means they are masked opportunities, and not something to fear.