Before we get started, a word of thanks. Gosh – so many of you have come over to Signals Matter already; what a wonderful testimonial to our service. Thank-you, so many of you, who have already joined us at SignalsMatter.com these last few days.
As we like to say, it’s not actually what we say that matters: What matters is whether what we say matters to others.You have been loud and clear.
Starting now, at www.SignalsMatter.com, you’ll receive the same unparalleled U.S. and global market intelligence that you’ve enjoyed at the Critical Signals Report…but much, much more…
Like Weekly Action Items, Global Heat Maps, Market Watch, Timely Charts, Sector Watch, Storm Tracker, and, of course, Your Portfolio – a service that provides specific trade recommendations for the times at hand, not to mention your very own Market School.
We’ll be here at CSR until month’s end, although we do have to advise that henceforth, adjustments to Storm Tracker and specific Sector and Portfolio recommendations will only be accessed at SignalsMatter.com, to protect our paid Signals Matter subscribers.
Makes sense and we hope you understand.
Our mission is straightforward, and always will be: Simple signals miles ahead of Wall Street and the Financial “media” at a price that makes our service available to all-from Main Street to the penthouse suite, because all investors, of all ages, experience and income levels, deserve straight talk and blunt market signals.
We’ll keep you in the know and not skip a beat.
Toward that end, and as inverting yield curves become a concerning issue all over again, what we’re seeing today is a market and economy marching steadfastly towards even higher levels of debt.
Big Borrowers…Big Budgets…Big Problems
The U.S. debt iceberg is growing larger…
U.S. Consumer Debt
U.S. household debt has just climbed above $14 trillion for the first time…ever…not a milestone to be proud of.
Mortgage originations, refinances, new auto loans, consumer credit (charted below), you name it, they all increased significantly in the final quarter of 2019. Consumer credit just shot 27% above 2013’s second-quarter trough.
A Budget for America’s Future: Government Debt
Government debt is headed for an equally new high as well, thanks to tax breaks and total spending proposed in A Budget for America’s Future, released this week by the White House.
According to the Congressional Budget Office (CBO), the U.S. is going to pile up an unprecedented budget deficit totaling $13.1 trillion over the coming decade.
The key here is not that our national debt continues to soar; what’s absolutely critical is the manner by which it is soaring relative to the size of the U.S. economy.
It’s this relative rate of size that’s important.
In short: The debt is growing far faster than the economy and its years of flat-lining GDP.
Folks: It’s All About Keeping Rates Low
Now…if interest rates remain low…ok, we forge on despite the debt pile.
This can and will be the main goal of the Fed, and the Fed is powerful.
As we’ve said so many times, everything hinges upon low rates to keep this debt-driven bubble alive.
But again, there always seems to be a rub…
First, and despite all the desperate (and expensive) efforts by the Fed to keep bond and repo rates low, it is ultimately the bond market, and not Powell, which determines rates, and these now coiled low rates can unspring for any number of reasons, all of which we track for you.
Keep Your Eyes on the 10-Year Treasury Yields
Secondly, and in the chart below, we see that the correlation between the S&P 500 Index and U.S. 10-Year Treasury yields just reached its highest level since the Flash Crash in 2010.
As we’ll explain here, these 10-Year Treasury yields are KEY market indicators, and you need to stamp that into your market thinking.
As a result of the Fed stimulus which we called in October, U.S. stocks are hitting fresh peaks, household and national debt is soaring, while 10-year yields (which move inversely to bond price) just hit fresh lows (nod to the coronavirus scare).
In other words, “risk-on” stock buying is rising at the very same time “risk-off” bond buying is rising, which is a classic sign of market signal confusion in the Post-2008 Twilight Zone.
What’s Wrong with this Picture?
What’s wrong is this. Simple math. Tax cuts reduce government income. Spending billions more on infrastructure and defense increases expenses.
Less income with higher expenses adds to the deficits, which are projected to add $5.6 trillion to our already nose-bleed high deficits over 10 years.
We get it: Red or Blue, lowering taxes and raising spending gets people elected.
But there’s a late-cycle tipping point at risk here.
Stocks are the highest ever at the very same time government bond-prices are climbing higher than ever, as proven by the fact that 10-Year Treasury yields are the lowest ever.
When, not if, those 10-Year yields (rates) creep up to thresholds of 2.5-3.0% (and stay there), those bonds are going to tumble, which means yields AND hence rates will rise, and rising rates kill debt driven stock bubbles.
Again, rising rates approaching a debt-driven stock market, are like shark fins approaching a surfer: Bad news.
For now, stocks and bonds are rising happily together, but there’s no plausible reason we’ve heard that they can’t fall miserably together as well.
The trillion-dollar question, of course, is when will this happen … and that’s what Storm Tracker is all about … to protect all of us market surfers from what we’ll call a late-cycle shark bite.
Storm Tracker Heading Under Wraps
We mentioned above that it wouldn’t be fair to our paid Signals Matter subscribers to continue to report on Storm Tracker probabilities in these pages.
After over a year of informing and explaining these and other indicators for free, we are, as indicated for months now, making the move to a greatly expanded service. As increasingly informed readers, we feel you do and will see the value and merit in this needed move.
Storm Tracker is the most trustworthy recession indicator out there and it tells you with precision just how close we are getting to that next recession and thus how much cash you should have in Your Portfolio.
Our Free Advice
For now, however, just keep your eyes on those 10-Year Treasury yields. Again, they are absolutely critical indicators.
The Fed knows this all to well, and will do as much as they can to continue this melt-up by bailing out future repo markets thirsty for less available dollars, which means more money printing/creation ahead as the US markets steer toward an ever-growing iceberg of debt.
In short, informed investors need to have their eyes on both the ship and the iceberg, and our aim is to provide the best binoculars possible.
So, Come Join Us
Come join those Critical Signals Report readers that have already made the jump to www.SignalsMatter.com.
We’ve loved our time with (and at) the Critical Signals Report, and with each of you, and will continue to inform you via the Critical Signals Report through February.
But if you’d like to get a head start and stay in the know on Storm Tracker and Your Portfolio, it’s time to share our binoculars. Bring your friends and shares too!
In the meantime, be watchful, stay informed and thus stay safe.
Matt & Tom
February 12 2020