The Bonfire Burns On, by John Mauldin

Two things that sound the financial alarms: US credit market debt is about 350 percent of GDP, and cash allocations in mutual funds are at multi-decade lows. From John Mauldin at mauldineconomics.com:

“Life invests itself with inevitable conditions, which the unwise seek to dodge, which one and another brags that he does not know, that they do not touch him; but the brag is on his lips, the conditions are in his soul. If he escapes them in one part they attack him in another more vital part. If he has escaped them in form and in the appearance, it is because he has resisted his life and fled from himself, and the retribution is so much death.”

– Ralph Waldo Emerson, “Compensation”

Bonfires are fun to watch, but they eventually burn out. Human folly apparently doesn’t, so we just keep adding to the absurdities. The volume of daily economic lunacy that lights up my various devices is truly stunning, and it seems to be increasing. I shared a little of it with you in last week’s “Bonfire of the Absurdities.” Since it’s a holiday weekend and I was traveling all week, today I’ll just give you a few more absurdities to ponder. And this shorter letter will lighten your weekend reading load.

First, let me thank everyone who took my advice to register early for my next Strategic Investment Conference, March 6–9, 2018, in San Diego. Hundreds of you are now confirmed to attend. I know many more intend to do so. Sadly, we can’t accommodate an unlimited number of you. I can’t say when we will reach capacity, but I hope it is soon. I am in negotiations right now with a very familiar name whose economic views are, shall we say, different from mine. Our idea is to debate those differences in front of an audience. Fireworks will likely ensue. But, to get this to happen, I need some numbers to line up. You can help by registering for the conference now. Click here for more information.

Now, on with the absurdities.

Leverage, American Style

When I asked my “kitchen cabinet” of friends for instances of the absurd, Grant Williams sent a monumental slide deck. I guess I should have expected that, as the absurd is one of his specialties. My computer almost melted trying to download the deck, but it finally finished and was worth the wait. Here is just one example of craziness.

This chart is straightforward: It’s outstanding credit as a percentage of GDP. Broadly speaking, this is a measure of how leveraged the US economy is. It was in a sedate 130%–170% range as the economy industrialized in the late 19th and early 20th centuries. It popped higher in the 1920s and 1930s before settling down again. Then came the 1980s. Credit jumped above 200% of GDP and has never looked back. It climbed steadily until 2009 and now hovers over 350%.

To continue reading: The Bonfire Burns On

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