Debt Matters, by the Northman Trader

Debt is one of SLL’s favorite subjects. Here’s one more guy weighing in, with lots of charts to back him up. From the Northman Trader at northmantrader.com:

My take: Consumer debt is a massive problem. There are people that don’t see it that way. I think that’s a mistake and I’ll outline my case here with some charts/thoughts and you are of course free to draw your own conclusions.

I don’t think it’s an accident that markets have been reacting negatively to yields spiking. And it’s also not an accident that home sales are dropping in the face of higher rates.

How sensitive to higher rates is the entire construct? Currently every spike in the 10 year invites selling during the day. Jerome Powell’s words led to yesterday’s 10 year spike above 2.9% and it flushed stocks.

Yesterday we also learned that 72% of earnings growth since 2012 was due to buybacks, or financial engineering in short:

“Volatility is an instrument of truth, and the more you deny the truth, the more the truth will find you through volatility.” Over the past decade, there has been no corporate instrument of mistruth more powerful than buybacks, an issue we have dissected in these pages for years. U.S. firms have spent roughly $4 trillion on buybacks since 2009, making corporations the biggest single source of demand for U.S. shares. According to Artemis’s calculations, buybacks have “accounted for +40% of the total earnings-per-share growth since 2009, and an astounding +72% of the earnings growth since 2012.”

That’s a big number and it reveals the extent of the mirage that has been propagated for the past few years. Consumers and the government are drowning in debt and the construct continues to be held up by low rates, hence the sensitivity.

To continue reading: Debt Matters

 

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One response to “Debt Matters, by the Northman Trader

  1. The problem is that inflation is government’s preferred solution to debt. If you think it can’t happen here look at Venezuela and Zimbabwe. Does anyone believe our leaders care if the working man is reduced to poverty as long as their status and power is preserved?

    Deflation will not happen because it cannot be controlled. The government believes it can control inflation.

    Like

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