National Accounting: Making Money in Debt-Driven Markets—Market Crisis or Not
As markets continue to make new highs on the back of debt and hot air (from the white-house and the Fed, all the way to the MSM’s sell side market peddler de jour), I remain amazed and grumpy.
That little ol’ macro awareness within me continues to shake its head in fascination at the open denial of the debt elephant in the room and the market crisis ahead.
Not ones to confuse common economic sense with stock markets, we at Signals Matter continue to outperform this surreal market by a wide margin, ironically deriving the bulk of our safe/profitable trades on sector shorts rather than trending longs (notwithstanding a market that seemingly trends forever long).
In sum, and despite my/our astonishment with current politics, Fed policy and hope-driven markets, we at the trading desk keep making risk-adjusted returns, despite a market laden with unprecedented risk and a mathematically unavoidable market crisis on the horizon.
Speaking of a market crisis and national accounting…
Last week, I wrote that September was poised to be a bumpy ride (see Negative Yields and Bumpy September) due to the looming debt ceiling scheduled to peak in the final days of this month; I even set the drumroll for this critical moment of fiscal accountability in a prior month’s blog dedicated to the same topic (see Debt Ceiling—Where Market Bubbles Meet Political Bubbleheads).
Perhaps I spoke too soon.
Our Embarrassing Balance Sheet
In a dark kind of way, I was actually looking forward to a debt ceiling moment this month, and not because I want a market crisis, but far more importantly, because (like all of us) I value fairness—and as importantly, I value accountability.
Unfortunately, we live in an increasingly dark era in which financial systems ignore, hide from, and talk around accountability.
Take for example, our national balance sheet and consider national accounting.
In a country: 1) where combined government, personal and corporate debt stands at an appalling $66T; 2) where unfunded government liabilities exceed $200T; 3) where the Federal deficit passes $20T; and 4) where our Federal Reserve (which is neither “Federal” nor a “Reserve”) props Wall Street (rather than Main Street) by printing trillions out of thin air and suppresses interest rates to the floor, we have a lot to be “accounting” for…
But here’s a little fact you won’t often hear in a tweet, Bloomberg ad or NPR “market watch.” If you add up all the above debt (and I’m not even including the notional value of the global derivatives market), there is literally not enough money on the entire planet to pay it off. Read that again.
That’s why our debt ceiling matters. Once every two or so years it gets a moment in an otherwise unaccountable financial media to remind us—from the Presidency to the Federal Reserve, and from Joe Hedge Fund Manager all the way to Joe Six Pack—that our once great country is broke, over it heads in debt and tilting toward a massive, well …market crisis.
But like anyone (from a spoiled child to a happy-idiot politician) who avoids accountability, such facts and statements are annoying, depressing and irritating.
As such, it really comes as no surprise that as this debt ceiling moment of accountability approached its September moment in the sun, the easiest way to face it was to…well: avoid it.
Pain Avoidance—The New “American Way”
And so last week Trump (the not-so-Republican President) got together with ol Chuck Schumer (the not-so-accountable Democrat) and came up with a brilliant set of ideas: i.e. let’s post-pone this debt ceiling thing, or better yet, let’s consider doing away with it alltogether, after all, it’s a real political kill-joy.
And thus we bought ourselves (and the stock market) another 90 days of fantasy. And don’t be surprised in December if the embarrassing debt-ceiling moment is postponed another 90 days into March.
Out of Sight, Out of Our Minds
This “out of sight, out of mind” penchant is becoming a cultural habit, at least in DC and Wall Street, were our D.O.T, like most of your RIA’s (and our MSM), ignore market bubbles and debt bombs with astounding (and of course televised) charm.
But let’s pause a moment and metaphorically unpack the implications of this newest example of DC brilliance…
Imagine a fantasy world in which you had the power to make bad things disappear.
Your kid, for example, gets all D’s at school –and voila, you eradicate report cards. Maybe you get one too many speeding tickets—and voila, you eradicate traffic courts. Or suppose you tire of paying taxes—so voila, you make the IRS disappear.
Sound crazy? Even a bit stupid?
Well, America’s current financial planning is no less crazy and no less stupid. In fact, it’s even dangerous. Taking away our debt-ceiling and balance-sheet driven chaperone at the Washington frat party is like taking away our last chance at any semblance of monetary and fiscal sobriety.
And the current debt ceiling, unlike those in the past, is so big, it can’t be fixed without some real pain in its wake. That’s why it’s being postponed.
Looking Forward: A Market Crisis?
As indicated above (as well as through out many prior blogs) the math makes it clear (rather than just “bearish”) that our debt-soaked, GDP-stalled America and Fed-supported /addicted markets will inevitably and unavoidably experience an historical market crisis as well as a recession.
We can anticipate a market crisis with as much certainty as knowing 12 martinis will result in a sobriety crisis. It’s common sense—however unpleasant the sensation (or the vodka). Hell, even the partial architect of the coming market crisis, Alan Greenspan, admits as much. The debt is too big, the income too small and the laws of markets too real. Period.
In the meantime, how long can postponing reality and accountability continue—in both the markets and the political economy? In other words, at what point does the martini binge end in a hangover?
Without sound technical analysis of money flows, it’s hard to time the end of can-kicking and public delusion. There’s little guidance in trying to gauge media data, which is why we prefer looking at market signals, charts, trends, and data rather than televised pabulum or “animal spirits.” The press just whistles past the balance sheet iceberg day after day…
Even as Trump, the markets and the financial media took a victory lap over the President’s “historic olive branch to the Democrats” in this month’s balance sheet postponement, they left out a few key facts and figures…
As Trump, Pelosi and Schumer bathed in a day of favorable tweets, they forgot to remind us that the 90 days they bought will cost America $316B in additional (and unresolved) debt.
That’s more money added to our deficit in a single afternoon than was added to our deficit in the first 160 years of our nation, combined, from Presidents Washington to Johnson…In short: nothing to tweet about.
But our leadership today, however, popular or maligned, however rich, and however skilled at NY real estate or in getting financial advice from FOX news, has no clue about economics.
As a GOP insider admitted to Axios, Trump seeing himself as a fiscal expert is “quite literally” like “a guy who watches ‘ER’ trying to perform surgery.”
As an American who wants to like his President, red or blue, I’m increasingly less interested in bashing Trump, the twisted leftist media or the right-wing reactionaries. Like most of us who are growing increasingly tired of political hype from either side, All I want is common sense.
And as for that looming market crisis?
At Signals Matter, we rely upon a proprietary “Iceberg Watch,” which filters hundreds of technical and fundamental market indicators and then reduces them into what we consider an industry-leading “warning bell.”
As of today, it has yet to ring—only shake a bit.
Market triggers, of course, are not always foreseen in an algorithm, but we are confident we’ll be a step ahead of the approaching market crisis. In the interim, we’ll certainly be keeping our eyes on the budget and tax cut disasters looming on the delayed horizon…
Any Chance of a Balanced Budget or Miraculous Tax Cuts?
All of us, red or blue, would also like to see a balanced budget and even a bit of sound tax reform, no? Certainly these bubbly markets are counting on it.
As for the chances of either, I’m not holding my breath. Trump’s recent rapprochement with the Democrats left many hard-core Republicans on the Hill dumbfounded. The GOP majority looks increasingly fractured, with the Freedom Caucus and GOP fiscal hawks tilting toward a kind of “Republican succession” if the parties can’t agree on a revenue neutral tax cut.
Whatever “solution” our elected geniuses either postpone or arrive at—my hunch is it will be premised on unrealistic growth projections and lofty words rather than austere accountability. Trump, in the meantime, is promising “so much economic growth, so much money, more than you can imagine.”
Such boasting is frankly getting old. I’m not a pessimist or kill-joy, but I wish not only Trump, but Schumer, Pelosi and the majority of both the donkeys and elephants in DC would just look at the debt numbers we posted above and get—accountable.
You and I are facing facts, it’s time our law-makers (and Fed governors) do the same.
One response to “No Accountability for Our National Accounting”
September 14 2017