Posts Tagged ‘debt to GDP’

The Last Chapter

The Last Chapter 

Courtesy of John Mauldin at Thoughts From The Frontline 

Two people climbing rope to birdcage containing goose and golden egg

The Last Chapter 
Let’s Look at the Rules 
Six Impossible Things 
Killing the Goose 
Home and Then Europe

This week you will get a kind of preview as this week’s letter. I am desperately trying to finish the first draft of my book and am one chapter away from having that draft. I have promised my editor (Debra Englander) that she would see a rough draft next week, and the final version will be delivered on the last day of September. More on that process for those interested at the end of the letter. But this week’s letter will be part of what will probably be the 4th or 5th chapter, where we look at the rules of economics.

There is just so little writing time left that I have to focus on that book for a little bit. I am writing this book with co-author Jonathan Tepper of Variant Perception (who is based in London), a young and very gifted Rhodes scholar with a talent for economic analysis and writing. We each write the first draft of a chapter and then go back and forth until the chapter has been much improved. Alas, gentle reader, you will only get my first draft. You will have to wait for the book to get the new, improved version. But this is the last one I have to write. And Jonathan has done all his initial chapters. We are on the home stretch.

But first, my partners at Altegris Investments have written a White Paper entitled "The New Normal: Implications for Hedge Fund Investing." It is a very instructive read. If you are in the US and have already signed up for my Accredited Investor letter, you should already have been sent a link or a copy. If not, and you are an accredited investor (basically net worth of $1.5 million or more) and would like to see the paper, or are interested in learning more about how hedge funds, commodity funds, and other absolute-return strategies might fit into your investment portfolio, I suggest you click on www.accreditedinvestor.ws and fill out the form, and a professional will get back to you. And if you live outside the US and are interested, I have partners around the world who can work with…
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Debt, Taxes and Politics

Debt, Taxes and Politics 

Courtesy of Doug Short 

I continue to receive many email requests for links to my charts on federal debt, taxes, and politics. Here is the latest update, and I’ve added a permanent link to it the Favorites menu above.


My previous commentary on US Federal debt and personal tax rates highlighted the significant difference between nominal and real (inflation-adjusted) gross federal debt. I showed that the tax cuts in the early 1980s coincided with the beginning of an acceleration in real federal debt from a relatively consistent level over the previous three decades, evident in the first chart.

The second chart replaces real debt with the debt-to-GDP (Gross Domestic Product) ratio. Against the backdrop of US history, the contours of the first two-thirds of the chart are easy to understand. Debt-to-GDP soared with the US entry into World War I, as did the personal tax rates. After the war the ratio gradually dropped, this time against the backdrop of the "Roaring Twenties." The Crash of 1929 and Great Depression triggered a rise in the ratio to levels exceeding the peak in World War I. Logically enough, World War II brought about another rapid rise in Debt-to-GDP. War costs drove the ratio to a peak above 120% in 1946.

The ratio rapidly declined after WW II and bottomed out 28 years later in 1974, where it remained within a 3% range until 1982. Then, over a 14-year period the ratio more than doubled from 31.9% in 1981 to 67.1% in 1995. For the next six years the ratio improved, dropping to 56.5% in 2001. The ratio reversed again, this time in sync with several factors — the Tech Crash, 911, and wars in Afghanistan and Iraq. And then, of course, came a dramatic acceleration in the ratio triggered by the Financial Crisis and deepest market decline since the Great Depression.

Here’s another view of the federal debt-to-GDP ratio, this time with major wars and the Great Depression highlighted:

Debt and Taxes

Does the Gross Federal Debt-to-GDP ratio chart change my view of the disconnect between tax brackets and gross federal debt? Not at all. There is a logic to the ratio increases within the historical context of two World Wars and the Great Depression. Likewise,…
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Here Is Why the Fed Cannot Simply Continue to Inflate Its Way Out of Every Financial Crisis That It Creates

Here Is Why the Fed Cannot Simply Continue to Inflate Its Way Out of Every Financial Crisis That It Creates

Courtesy of JESSE’S CAFÉ AMÉRICAIN

The return on each new dollar of US debt is plummeting to new lows according to figures from the Federal Reserve.

The chart below is from the essay, Not Just Another Greek Tragedy by Cornerstone.

I have been watching this chart for the past ten years, as part of the dynamic of the sustainability of the bond and the dollar as the limiting factor on the Fed’s ability to expand the money supply.

The ability to expand debt is contingent on the ability to service debt. If the cost of the debt rises over the net income of the country’s capital investment, or even gets close to it, the currency issuing entity is trapped in a debt spiral to default without a radical reform.

In other words, if each new dollar of debt costs ten percent in interest, largely paid to external entities, and it generates less than ten cents in domestic product, it is a difficult task to grow your way out of that debt without a default or dramatic restructuring.

So we are not quite there yet. But we are getting rather close on an historic basis. Without the implicit subsidy of the dollar as the world’s reserve currency it would be much closer.

As it is now, this chart indicates that stagflation at least, rather than a hyperinflation, is in the cards for the US. But the trend is not promising, and the lack of meaningful reform is devastating.

A ‘soft default’ through inflation is the choice of those countries that have the latitude to inflate their currencies. Greece, being part of the European Monetary Union, did not. The US is not so constrained, especially since it owns the world’s reserve currency.

The economy is out of balance, heavily weighted to a service sector, especially the financial sector which creates no new wealth, but merely transforms and transfers it. With stagnation in the median wage, and an historic imbalance in income distribution skewed to the top few percent, with the banks levying de facto taxation and inefficiency on the economy as a function of that income transfer, there should be little wonder that the growth of real GDP is sluggish in relation to new debt. 

Or as Joe Klein…
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The Center Cannot Hold

The Center Cannot Hold

brown falcon Courtesy of John Mauldin, Thoughts from the Frontline 

The Risks from Fiscal Imbalances 
The Challenge for Central Banks 
Bang, Indeed! 
The Center Cannot Hold 
A Decent Employment Report 
Montreal and New York and Italy

Turning and turning in the widening gyre 
The falcon cannot hear the falconer; 
Things fall apart; the center cannot hold; 
Mere anarchy is loosed upon the world, 
The blood-dimmed tide is loosed, and everywhere 
The ceremony of innocence is drowned; 
The best lack all conviction, while the worst 
Are full of passionate intensity.

- William Butler Yeats

Last week we focused on the first half of a paper by the Bank of International Settlements, discussing what they characterized as the need for "Drastic measures … to check the rapid growth of current and future liabilities of governments and reduce their adverse consequences for long-term growth and monetary stability." As I noted, you don’t often see the term drastic measures in a staid economic paper from the BIS. This week we will look at the conclusion of that paper, and then turn our discussion to the fallout from the problems they discuss, initially in Europe but coming soon to a country near you.

But first, what a week in the markets! I’m sure more than a few investors felt like they had a severe case of whiplash. We will discuss the volatility a little more below.

First, a very quick three-paragraph commercial. In the current market environment, there are managers who have not done well and then there are money managers who have done very well. My partners around the world would be happy to show you some of the managers they have on their platforms that we think are appropriate for the current environment. If you are an accredited investor (basically a net worth over $1.5 million) and would like to look at hedge-fund and other alternative-fund managers (such as commodity traders) I suggest you go to www.accreditedinvestor.ws and sign up; and someone from Altegris Investments in La Jolla will call you if you are a US citizen. Or you’ll get a call from Absolute Return Partners in London if you are in Europe (they also work with non-accredited investors). If you are in South Africa, then someone from Plexus Asset Management will ring.…
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Weekend Stupidity Roundup: Debt On Parade

Weekend Stupidity Roundup: Debt On Parade

Courtesy of Karl Denninger at The Market Ticker

Here are the charts presented in the video; click on any image for a larger copy.

debt 

 

The two Tickers referencing Bove, here and here.

And finally, the Bloomberg link is here.

 


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Zero Hedge

EU Walks Back Embarrassing Claim Of 150,000 Russian Troops Near Ukraine Border

Courtesy of ZeroHedge View original post here.

Authored by Dave DeCamp via AntiWar.com,

The European Union had to correct a claim made by its foreign policy chief, Josep Borrell, concerning Russian troops near the Ukrainian border. Borrell told reporters on Monday that there were "over 150,000"&nb...



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Phil's Favorites

A Trader's Federal Lawsuit Against JPMorgan Chase Offers a Window into the Crime Culture at the Five Felony-Count Bank

Courtesy of Pam Martens

Jamie Dimon, Chairman and CEO, JPMorgan Chase

Donald Turnbull, a former Global Head of Precious Metals Trading at JPMorgan Chase, has filed a doozy of a federal lawsuit against the bank. Turnbull worked on the same JPMorgan Chase precious metals desk that was deemed to be a racketeering enterprise by the U.S. Department of Justice when it handed down indictments in 2019. This was the first time that veterans on Wall Street could recall employee...



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Biotech/COVID-19

No, vaccine side effects don't tell you how well your immune system will protect you from COVID-19

 

No, vaccine side effects don't tell you how well your immune system will protect you from COVID-19

It’s not a bad sign if you feel fine after your COVID-19 shot. Luis Alvarez/DigitalVision via Getty Images

Courtesy of Robert Finberg, University of Massachusetts Medical School

If someone gets a headache or feels a bit under the weather after receiving a COVID-19 vaccine, it’s become common to hear them say something like “Oh, it just means my immune system is really working hard.” On the flip side...



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Digital Currencies

A Unifying Theory of Everything

 

A Unifying Theory of Everything

Courtesy of Scott Galloway, No Mercy/No Malice@profgalloway

This week, New York Magazine let me go full stream of consciousness on … everything. Their editor pitched me the idea to articulate a unifying theory on “this whole crazy techno-fiscal moment.” Problem is, while I understand crypto better than 99 percent of people, I do not understand crypto.

On Wednesday, crypto pioneer Coinbase listed shares on the NASDAQ, and closed the day at an almost $100 billion valuation, making it nearly as valuable as Goldman Sachs. Coinbase’s big day made a bunch of wealthy people wealthier, but it also poked several bears — ...



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ValueWalk

Managing Investments As A Charity Or Nonprofit

By Anna Peel. Originally published at ValueWalk.

Maintaining financial viability is a constant challenge for charities and nonprofit organizations.

Q4 2020 hedge fund letters, conferences and more

The past year has underscored that challenge. The pandemic has not just affected investment returns – it’s also had serious implications for charitable activities and the ability to fundraise. For some organizations, it’s even raised doubts about whether they can continue to operate.

Finding ways to generate long-term, sustainable returns for ...



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Chart School

Money Printing Asset Price Targets

Courtesy of Read the Ticker

The FED giveth and the FED taketh away. Right now the FED is giving a lot into 2022 US Mid Terms. 

Unless the FED breaks the market, here are some BRRRRR asset price targets, not normal price targets but money printing adjusted price targets. 


BITCOIN 175,000 to 500,000 USD

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DOW to 40,000 to 50,000

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More DOW

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Politics

Colombia gives nearly 1 million Venezuelan migrants legal status and right to work

 

Colombia gives nearly 1 million Venezuelan migrants legal status and right to work

Venezuelans wait at the Colombian border to be processed and housed in tents in 2020. All Venezuelans now in Colombia will receive a 10-year residency permit. Schneyder Mendoza/AFP via Getty Images

Courtesy of Erika Frydenlund, Old Dominion University; Jose J. Padilla, Old Dominion University...



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Kimble Charting Solutions

Will Historic Selloff In Treasury Bonds Turn Into Opportunity?

Courtesy of Chris Kimble

Long-dated treasury bonds have been crushed over the past year, sending ETFs like TLT (20+ Year US Treasury Bond ETF) spiraling over 20%.

Improving economy? Inflation concerns? Perhaps a combination of both… interest rates have risen sharply and thus bond prices have fallen in historic fashion.

Today’s chart looks at $TLT over the past 20 years. As you can see, the recent decline has truly been historic. $TLT’s price has swung from historically overbought highs to oversold lows.

At present, the long-dated bond ETF ($TLT) is trading 7.8% below its 200-...



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Mapping The Market

Suez Canal: Critical Waterway Comes to a Halt

 

Suez Canal: Critical Waterway Comes to a Halt

Courtesy of Marcus Lu, Visual Capitalist

The Suez Canal: A Critical Waterway Comes to a Halt

On March 23, 2021, a massive ship named Ever Given became lodged in the Suez Canal, completely blocking traffic in both directions. According to the Suez Canal Authority, the 1,312 foot long (400 m) container ship ran aground during a sandstorm that caused low visibility, impacting the ship’s navigation. The vessel is owned by Taiwanese shipping firm, Evergreen Marine.

With over 2...



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Promotions

Phil's Stock World's Weekly Webinar - March 10, 2021

Don't miss our latest weekly webinar! 

Join us at PSW for LIVE Webinars every Wednesday afternoon at 1:00 PM EST.

Phil's Stock World's Weekly Webinar – March 10, 2021

 

Major Topics:

00:00:01 - EIA Petroleum Status Report
00:04:42 - Crude Oil WTI
00:12:52 - COVID-19 Update
00:22:08 - Bonds and Borrowed Funds | S&P 500
00:45:28 - COVID-19 Vaccination
00:48:32 - Trading Techniques
00:50:34 - PBR
00:50:43 - LYG
00:50:48 - More Trading Techniques
00:52:59 - Chinese Hacks Microsoft's E...



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The Technical Traders

Adaptive Fibonacci Price Modeling System Suggests Market Peak May Be Near

Courtesy of Technical Traders

Our Adaptive Fibonacci Price Modeling system is suggesting a moderate price peak may be already setting up in the NASDAQ while the Dow Jones, S&P500, and Transportation Index continue to rally beyond the projected Fibonacci Price Expansion Levels.  This indicates that capital may be shifting away from the already lofty Technology sector and into Basic Materials, Financials, Energy, Consumer Staples, Utilities, as well as other sectors.

This type of a structural market shift indicates a move away from speculation and towards Blue Chip returns. It suggests traders and investors are expecting the US consumer to come back strong (or at least hold up the market at...



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Lee's Free Thinking

Texas, Florida, Arizona, Georgia - The Branch COVIDIANS Are Still Burning Down the House

 

Texas, Florida, Arizona, Georgia – The Branch COVIDIANS Are Still Burning Down the House

Courtesy of Lee Adler, WallStreetExaminer 

The numbers of new cases in some of the hardest hit COVID19 states have started to plateau, or even decline, over the past few days. A few pundits have noted it and concluded that it was a hopeful sign. 

Is it real or is something else going on? Like a restriction in the numbers of tests, or simply the inability to test enough, or are some people simply giving up on getting tested? Because as we all know from our dear leader, the less testing, the less...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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