This past week, Mark Hulbert wrote an article discussing the recent drop in margin debt. To wit:
“Plunging margin debt may not doom the bull market after all, reports to the contrary notwithstanding.
Margin debt is the total amount investors borrow to purchase stocks, which historically has risen during bull markets and fallen during bear markets. This total fell more than 6% in October, according to a report last week from FINRA. We won’t know the November total until later in December, though I wouldn’t be surprised if it falls even further.
A number of the bearish advisers I monitor are basing their pessimism at least in part on this plunge in margin. It’s easy to see why: October’s sharp drop brought margin debt below its 12-month moving average. (See accompanying chart.)”
“According to research conducted in the 1970s by Norman Fosback, then the president of the Institute for Econometric Research, there is an 85% probability that a bull market is in progress when margin debt is above its 12-month moving average, in contrast to just a 41% probability when it’s below.
Why, then, do I suggest not becoming overly pessimistic? For several reasons:
1) The margin debt indicator issues many false signals
The EU is trying to stop rising nationalism across Europe, but in so doing may accelerate it instead. From Alastair Crooke at strategic-culture.org:
The EU leadership is trying to contain a crisis that is emerging at increasing speed: this challenge comprises the rise of contumacious states (i.e. the UK, Poland, Hungary and Italy), or of defiant, historic ‘cultural blocs’ (i.e. Catalonia) – all of whom are explicitly disenchanted with the notion of some coerced convergence towards a uniform EU-administered ‘order’, with its austere monetary ‘disciplines’. They even dismiss the EU’s claim to be, somehow, a part of a greater civilizational order of moral values.
If, in the post-war era, the EU represented an attempt to escape the Anglo-American hegemony, these new defiant blocks of ‘cultural resurgence’ which seek to situate themselves as interdependent, sovereign ‘spaces’ are, in their turn, an attempt to escape another type of hegemony: that of an EU administrative ‘uniformity’.
To exit this particular European order (which it originally was hoped, would differ from the Anglo-Americanimperii), the EU nevertheless was forced to lean on the latter’s archetypal construct of ‘liberty’ as empire’s justification (now metamorphosed into the EU’s ‘four freedoms’) on which the EU strict ‘uniformities’ (the ‘level-playing-field’, regulation in all aspects of life, tax and economic harmonization) have been hung. The European ‘project’ has become seen, as it were, as something that hollows out distinct and ancient ‘ways-of-being’.
Perhaps some of the problems young people face are caused by dysfunctional family situations and our failing education system. From James Ostrowski at lewrockwell.com:
Critics are perhaps too quick to judge America’s young people, citing declining SAT scores, obesity, drug overdoses, addiction to smart phones, bizarre alterations of personal appearance and high rates of (alleged) mental illness. It’s just too easy to be annoyed at how some of the cashiers at the local grocery store seem unable to carry on a conversation or have chosen to mutilate their faces with pieces of metal. We are perhaps too quick to condemn the crazed behavior of young protesters in recent years without fully considering what our government, society and culture have done to these poor souls.
Let’s begin at the beginning. Forty percent of Americans are now born out of wedlock. Single parent families are associated with a long list of social maladies:
“Children who grow up with only one of their biological parents (nearly always the mother) are disadvantaged across a broad array of outcomes. . . . they are twice as likely to drop out of high school, 2.5 times as likely to become teen mothers, and 1.4 times as likely to be idle — out of school and out of work — as children who grow up with both parents. Children in one-parent families also have lower grade point averages, lower college aspirations, and poorer attendance records. As adults, they have higher rates of divorce. These patterns persist even after adjusting for differences in race, parents’ education, number of siblings, and residential location.” Sara McLanahan, “The Consequences of Single Motherhood,” American Prospect (Summer 1994).
It’s only a matter of time before it all blows up. It’s probably already started. From Jim Quinn at theburningplatform.com:
“This country, and with it most of the Western world, is presently going through a period of inflation and credit expansion. As the quantity of money in circulation and deposits subject to check increases, there prevails a general tendency for the prices of commodities and services to rise. Business is booming. Yet such a boom, artificially engineered by monetary and credit expansion, cannot last forever. It must come to an end sooner or later. For paper money and bank deposits are not a proper substitute for non-existing capital goods. Economic theory has demonstrated in an irrefutable way that a prosperity created by an expansionist monetary and credit policy is illusory and must end in a slump, an economic crisis. It has happened again and again in the past, and it will happen in the future, too.” – Ludwig von Mises – 1952
As the von Mises quote proves, economic cycles, artificial booms created by Federal Reserve easy money and delusional human nature are cyclically constant across the decades. Anyone with an ounce of critical thinking skills realizes the current artificial boom, created by a feckless Fed captured by Wall Street banks and corrupt Washington politicians who took Dick Cheney’s “deficits don’t matter” mantra to obscene levels, will end in another financial crisis. Our Deep State controllers have “solved” a financial crisis caused by too much debt by tripling down on more debt.
Even if China were to give in to every American demand, it would not restore the US to the anomalous prominence it enjoyed for two decades after World War II. From Finian Cunningham at strategic-culture.org:
The G20 summits are nominally about how the world’s biggest national economies can cooperate to boost global growth. This year’s gathering – more than ever – shows, however, that rivalry between the US and China is center stage.
Zeroing in further still, the rivalry is an expression of a washed-up American empire desperately trying to reclaim its former power. There is much sound, fury and pretense from the outgoing hegemon – the US – but the ineluctable reality is an empire whose halcyon days are a bygone era.
Ahead of the summit taking place this weekend in Argentina, the Trump administration has been issuing furious ultimatums to China to “change its behavior”. Washington is threatening an escalating trade war if Beijing does not conform to American demands over economic policies.
President Trump has taken long-simmering US complaints about China to boiling point, castigating Beijing for unfair trade, currency manipulation, and theft of intellectual property rights. China rejects this pejorative American characterization of its economic practices.
Nevertheless, if Beijing does not comply with US diktats then the Trump administration says it will slap increasing tariffs on Chinese exports.
The gravity of the situation was highlighted by the comments this week of China’s ambassador to the US, Cui Tiankai, who warned that the “lessons of history” show trade wars can lead to catastrophic shooting wars. He urged the Trump administration to be reasonable and to seek a negotiated settlement of disputes.
Insolvency will sound the death knell for the American empire. Fron Antonius Aquinas at antoniosaquinas.com:
In a talk which garnered little attention, one of the Deep State’s prime operatives, National Security Advisor John Bolton, cautioned of the enormous and escalating US debt. Speaking before the Alexander Hamilton Society, Bolton warned that current US debt levels and public obligations posed an “economic threat” to the nation’s security:
It is a fact that when your national debt gets to the level ours is, that it constitutes an economic threat to the society. And that kind of threat ultimately has a national security consequence for it.*
What was most surprising about Bolton’s talk was that there has been little reaction to it from the financial press, the markets themselves, or political commentators. While the equity markets have been in the midst of a sell off, it has not been due (as of yet) to US deficits, currently in excess of $1trillion annually. Instead, the slide has been the result of fears over increase in interest rates and the continued trade tensions with China.
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