While the global bond markets have begun to correct their 35 year bull market, the major U.S. stock indices, including the Dow, NASDAQ, Russell and S&P, have rallied nicely.
Official U. S. national debt is approximately $20 trillion as of December 2016, and has approximately doubled every 8 years at a 9% compounded rate for over a century.
Official Debt
- 2016 $20 trillion
- 2024 $40 trillion
- 2032 $80 trillion
- 2040 $160 trillion (What Could Go Wrong?)
Debt And S&P 500 Higher
Examine this 27 year graph of official national debt and the S&P 500 index, both on log scales. They increase together. Debt increases, more dollars surge through the economy and those dollars are plugged into stocks, bonds, and higher consumer prices.
Examine this three decade chart of crude oil on a log scale. Prices increase exponentially and are near the bottom of the range as drawn.
Examine this three decade chart of gold on a log scale. Prices increase exponentially and are near the bottom of the range as drawn.
Examine this three decade chart of the ratio of the Dow to crude oil. The ratio is near the high end of the range. A correction back to the lower trend channel suggests higher crude-oil prices and/or lower Dow. Because the U.S. stock market is overvalued by any number of measures involving price, earnings, book value, ratio to GDP and more, my expectation is the Dow will decline in 2017.
Read: The Jaws of Life: The Most Hated Bull Market In History
Read: VIX and Stocks Surge
Read: NYSE Margin Debt
Read: Dow is Most Overbought in Over 20 Years
Read: The Second-Most Overbought Market Since 1980
Read: SPX Chart is Flashing Red!
Examine this 100-year chart of the ratio of the Dow to gold. Global debt growth is outrageous and clearly out of control, central banks overtly encourage consumer price inflation, bond monetization and QE have become normal, the Dow sits at all-time highs and gold has fallen 40% from its highs, the reasonable expectation is the price of gold will rally substantially, and probably the Dow will correct in 2017.
Conclusions
U.S. stock markets are making new highs regularly even though bonds are falling. Expect a substantial correction.
Central banks hate to see stocks and bonds falling. Expect more QE.
Central banks do not want higher gold prices but the coming financial crisis will focus their worries elsewhere. Expect gold to rise much higher depending on the degree of fiscal and monetary craziness, debt growth and QE “money printing.”
DISCLOSURE (sarcasm):
This article was not influenced by supposed Russian hackers, CIA leaks, John Podesta emails, or “fake news” reported by the NY Times or Zerohedge about democrats, republicans, HRC or Trump.
Read Karl Denninger on Russian Hacking