Federal Debt Soars, CAPE Ratio Projects Negative Earnings, and Signals from High Yield
January 20, 2021 | FIRESIDE CHARTS
Federal debt saw a $4.5 billion+ year-over-year climb in 2020 and closed the year at over 130% of U.S. GDP. More stimulus funding is a central talking point in Washington as the Biden administration takes office today and stocks have climbed in response, but further massive debt expansion remains a national concern. Meanwhile, is the momentum we’re seeing in small-caps and big tech sustainable or are both due for a rest? Fund managers don’t seem deterred if their record-high risk appetite and minimal cash holdings are anything to go by… What does the CAPE ratio have to say on the matter though? Meanwhile, Treasury yields are climbing, and the spread to High Yield has been gradually shrinking—is it a good sign or could it be masking something more ominous?
1. We are spending more Federal money today, as a percent of our economy, than we did in WW II or ever before…
Source: The Chart Store, 1/19/21
2. Giving and getting government payments may seem nice and even necessary…until we start to realize we still have to pay this money back…
Source: The Chart Store, 1/19/21
3. Instead of giving to everyone, including those fortunate enough to have little economic impact from Covid, should our stimulus focus on those who need help now?
Source: The Daily Shot, 1/19/21
4. Low mortgage rates and the desire to flee dense living quarters has spurred on the housing market. Will new housing ignite due to the higher prices?
Source: The Daily Shot, 1/20/21
5. Lesson learned? As a whole, U.S. household credit is at its lowest in 35 years:
Source: The Daily Shot, 1/20/21
6. Small caps continue to go “ballistic.” Time for a rest?
Source: The Chart Store, 1/19/21
7. The leaders of the last decade have also resumed an almost vertical path. These trends can last a while, but rarely end without a “bang”…
Source: The Chart Store, 1/19/21
8. Based on past election “sweeps,” the market is way ahead of itself…
Source: The Daily Shot, 1/20/21
9. Fund managers are subject to the same biases and emotions of the public. Too little dry powder as FOMO takes over?
Source: The Daily Shot, 1/20/21
10. The CAPE ratio methodology is predicting negative equity returns for the next ten years. The question is in what form? A bear market or just lack-luster returns?
Source: The Daily Shot, 1/20/21
11. Much of the yield curve has doubled off its lows…
Source: The Daily Shot, 1/20/21
12. Welcome back, Janet!
Source: The Daily Shot, 1/19/21
13. Are junk bonds sending an “all clear” signal or are the elevated defaults being drowned out by the need for yield?
Source: The Chart Store, 1/19/21
14. Negative interest rates do have a cost to the banking system…
Source: The Daily Shot, 1/20/21
15. Is the commodity surge a harbinger of inflation and EM/DM outperformance?
Source: The Chart Store, 1/19/21
16. Five of the largest tax increases in our history were during WW II with three more shortly thereafter…
Source: The Daily Shot, 1/19/21
Disclosure: The charts and infographics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are they a recommendation to take any action. Individual securities mentioned may be held in client accounts. Past performance is no guarantee of future results.