Near Zero Growth. Exponentially Rising Debt. Static Investment Gambles.

Growth in the US over the last 10 years has simply collapsed

At this point global policy makers only seem to only have one plan – more debt

Debt keeps on having to rise at a much faster rate than the economy

It’s not even close to working

The only area where the debt illusion is still working is in the financial markets and in the minds of statically allocated investors

The only economic variable that still has a correlation with the Dow Jones, is, you guessed it, Debt

The most economically potent component of world economic activity has stopped growing after more than doubling since the 1950s

The sub 44 year old population of the world has now stopped growing and will soon start to decline

For investors with high static allocations to US equities this could be the worst investment gamble in history

At this point, it is my firm belief that any US equity investor who is not adopting a tactical approach to their assets could suffer significant consequences to their financial situation in the next few years.
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Growth in the US over the last 10 years has simply collapsed. This is simply the consequence of the US, and therefore by default the world, adopting a debt based economic system in the late 1960s. Since that time debt has grown exponentially. The chart below shows debt has a 98% correlation with an exponential curve until 2008. Debt has become so dominant as an economic factor that a temporary hiccup in debt growth in 2008 caused a a stunning global economic and market collapse.

US debt since 1970

 

 

 

 

 

 

 

 

 

 

 

 

 

At this point global policy makers only seem to only have one plan – more debt. Indeed, as the chart below shows, so much debt that debt is now leaving the economy far behind. Debt keeps on having to rise at a much faster rate than the economy. You don’t have to be PHD economist to understand that this isn’t a long term solution, and it’s not even close to working. Zero 10 year US growth is ever closer, as you can see from the chart above.

0117gdp-economic-deficit-010217

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Just in case you don’t believe in GDP statistics, the same thing shows up in global trade. The chart below shows that global trade was growing exponentially too until 2008. The chart below shows that no matter how much “stimulus” they add, it is just another word for debt that can’t fix the real problem. Global trade has now already permanently diverged from the old exponential curve.

 

0217globaltrade

 

 

 

 

 

 

 

 

 

 

 

 

The only area where the debt illusion is still working is in the financial markets and in the minds of statically allocated investors.

In previous notes I have shown that:

1. In the last 5 years Dow Jones revenues have fallen.

0217total-dow-jones-revenues-wolfstreet

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2. In the last 5 years S&P 500 GAAP earnings are flat.

 

 

1216spygaappe

 

 

 

 

3. In the last 10 years, as shown above, US economic growth is the lowest since to 1930s depression at just above 1%.

The chart below shows the only economic variable that still has a correlation with the Dow Jones, is, you guessed it, Debt.

 

 

dowdebt

 

 

 

 

 

 

 

 

 

 
Now not only is the world economy faced with the massive constraints of far too much debt, which keeps on rising faster than the economy. But the most economically potent component of world economic activity has stopped growing after more than doubling since the 1950s.

The sub 44 year old population of the world has now stopped growing and will soon start to decline.

 

0217worldzero44population

 

 

 

 

 

 

 
https://econimica.blogspot.com/2017/01/policy-makers-like-generals-are-busy.html

For investors with high static allocations to US equities this could be the worst investment gamble in history.

The median price/revenue ratio of the S&P 500 index has exploded to new all time highs more than 30% above the 2007 peak.

 

0217price2revenuespy
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

So at some of the highest valuations in history fueled only by debt, where debt expansion is already at damagingly high record levels and is diverging at an accelerating rate from near zero economic growth of the US and world economy, how could a high static allocation to equities be a good idea?

At this point, it is my firm belief that any US equity investor who is not adopting a tactical approach to their assets could suffer significant consequences to their financial situation in the next few years.

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