This week, American consumers reached a notable milestone in their ongoing financial struggles. A report released by the Federal Reserve Bank of New York revealed that total U.S. household debt has surged to an unprecedented $12.84 trillion in the second quarter, marking an increase of $552 billion compared to the previous year.
This is the second consecutive quarter in which U.S. household debt has reached an all-time high. Such a trend is noteworthy for several reasons.
First, it signifies that household debt in the U.S. has resumed its upward trajectory, a trend that persisted unbroken from the end of World War II until the Financial Crisis of late 2008. Second, it suggests that, similar to the S&P 500 index, new records are being hit with remarkable consistency. Could this just be a coincidence?
It seems unlikely. The substantial amounts of central bank liquidity infused into the financial system over the past decade have likely facilitated a flood of inexpensive credit, contributing to both soaring stock prices and rising household debt levels. Continue reading
As the old Wall Street adage goes, “Markets make opinions.” This catchy phrase raises an intriguing question: what does it really mean?
This notion implies that after a lengthy period of rising stock prices, even the most rational individuals devise clever narratives to justify the continuation of the good times. Over an extended bullish trend, these narratives become so ingrained that they begin to suggest an era of perpetually rising stock prices.
After nine years of nearly continuous stock market appreciation, fresh perspectives are emerging to explain why this upward trend in stock prices could persist indefinitely. The term “Goldilocks,” popular in the late 1990s, is being revived to describe how a slow-growing, low-unemployment economy is ideal for stocks. The idea is that a balanced economy—neither too cold nor too hot—will allow for continuous stock price increases.
Moreover, current conditions are so favorable that “Better than Goldilocks” is the new term being adopted. This was the conclusion reached by JPMorgan’s Jan Loeys after analyzing a five-year chart of the S&P 500 Index:
“We nicknamed this world ‘Better than Goldilocks’ two weeks ago.” Continue reading
Upon reflecting on basic mathematics, it becomes evident that the social safety nets in industrialized countries, including the U.S., are fraying. Sooner or later, this fragile fabric of safety nets may snap.
This conclusion is not merely speculative; it is grounded in fundamental arithmetic. The economy cannot support the extensive government obligations that have accumulated over the past 70 years.
In essence, the post-World War II economic boom is drawing to a close, and the repercussions are starting to manifest. Increasing proportions of future growth are already encumbered by existing debts, hampering the potential for new economic development.
This may explain why mature economies struggle to achieve even 3 percent GDP growth. In fact, the last instance of U.S. GDP exceeding 3 percent for an entire year was in 2005—over a decade ago. Unfortunately, it appears that robust GDP growth in the U.S. remains a distant hope. Continue reading
On a warm spring morning in 2016 in Los Angeles, we found ourselves at the bustling intersection of Wilshire Boulevard and South Figueroa Street. As we walked back to our office after a client meeting, we were lost in thought.
Amid a crowd of pedestrians, we looked up at the skeletal structure of what would become the Wilshire Grand Center. It was unusual to experience such silence—construction efforts were suspended for the day.
Tragically, less than a day earlier, a devastated electrician had fallen from the 53rd floor. This incident prompted an immediate stoppage of work and an evacuation of the site. “It sounded like a bag of cement had fallen off the edge of the building,” shared an observer remarked.
For us, the sound of impact was too grim to bear. Instead, we found ourselves contemplating how time must have both slowed down and sped up for the individual as they fell. Did they long for a second chance before it was too late? Continue reading
