The amount of debt in both China and the United States is horrifying and it continues to grow.
Debt growth is worshipped by millions of people who think it is a cure rather than a disease.
Until the trade war began, the Chinese government was pressuring the country’s private sector to reduce debt.
The government did stimulate modestly when Trump threw his “tariff tax tantrum”, but rating services like Moody’s and Fitch are concerned about the potential for defaults that could drag the global economy down into a crisis.
In 2019, corporate bond defaults in China have surged to almost ten times 2014 levels!
The bottom line: There’s a price to pay when a country, company, or person embraces a debt mentality and then “gets real” and attempts to deleverage.
The good news is that the Chinese government has at least acknowledged the dangers of debt worship. ln the United States, that hasn’t happened… and it won’t happen unless there is a disaster.
The US government promotes extreme debt as marvelous. Trump calls an economy that can’t even hold the 2% GDP growth marker without QE and near-negative rates… “the mightiest of all time”. This is 100% propaganda.
The US government wants even lower rates and even more QE, so it can go even deeper in debt, and companies can do more debt-oriented stock buybacks to keep the stock market “poster boy” looking good.
QE and artificially low rates in a high debt environment create full unemployment, but minimal GDP and wage growth.
Essentially, the citizens become dreary rats on a treadmill while the government tells them they are winning the gold medal in the Olympics.
Not surprisingly, banks do well. That’s because even though mortgage rates are near zero, houses are ridiculously expensive, so the total mortgage payments to the banks are decent.
What’s the difference between a 2% mortgage on a million-dollar home today and a 6% mortgage on a $50,000 home of the past? The answer for today is: More profits for the banks and more debt for the homeowner!
Elderly savers are also victims of global government and corporate debt worship. Their savings account income has been wiped out by government and central bank obsession with QE and negative rates. They get to wave “The government is makin’ me great!” flags in the air, but when all the flag waving is done, the have no income to put food on their table.
The democrats aren’t any more interested in higher rates or QT than the republicans. The democrat plan of action is also for more debt and more spending, but it includes more taxes too. This can’t end well… or can it?
It ends well… for gold!
In the short term, a small drifting rectangle within a large bull wedge is stopping the next leg of the rally from getting underway.
I predicted gold would bottom in Mid-November and it did, but the next rally won’t officially begin until gold trades above the supply lines of both the rectangle and the bull wedge.
A daily close of $1495 on this February gold contract chart would do that.
Silver stocks are the best performers of the entire precious metals sector right now and they bottomed back in mid-October.
Note the fabulous technical action around the Keltner lines. These lines act like banks on a river.
A market is defined as strong when rallies burst above the Keltner supply line and reactions either don’t penetrate the demand line or they end near the dotted middle line.
That’s the case with the Global X Silver Miners ETF (NYSE:SIL) ETF now, and many individual miners look even better! Given that silver bullion has been swooning, the price action of silver miners is outrageously bullish.
The next rally in bullion (which now seems imminent) should create incredible upside price action for most of the precious metals miners!
Written between 4am-7am. 5-6 issues per week. Emailed at aprox 9am daily.
Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form. Giving clarity of each point and saving valuable reading time.