Friday, July 10, 2015

tic tic tic tic.............it's coming............

Even those who do not believe that US equities are in a bubble (or that moral hazard troubles are rampant) must admit that debt issuance from low interest rates are at colossal levels.  The amount of debt issuance has broken a new record four years in a row.  The last two quarters are the largest quarters ever. 

This moonshot of global levels of indebtedness will be an economic headwind for decades to come particularly if and when interest rates rise.  Maintaining a policy tool that encourages such massive indebtedness (public and private issuance) is imprudent long run policy.  As mentioned above, it mortgages the future while attempting to immediately boast equity prices and economic activity. This trade-off has failed to play out as officials suspected; otherwise debt-to-GDP levels would have fallen. 

It is the Fed’s zero interest rate policy foremost that has provided the opportunity for the debt issuance to occur in the first place. As the Volcker Rule launches on July 20th, market making and liquidity will soon deteriorate further; a troubling result of over-zealous regulators.   In addition, a large portion of the debt issuance proceeds have gone into share buyback, further fueling the illusion of healthy EPS improvement.

“The government solution to a problem is usually as bad as the problem”.

 – Milton Friedman

No comments:

Native American Advisors CHIPPEWA PARTNERS

My photo
CHIPPEWA PARTNERS, Native American Advisors, Inc. is a Registered Investment Advisor, founded by Dean Thomas Parisian in 1995. The firm is a manager to an exclusive clientele and is closed to new clients. As a Registered Investment Advisor, our expertise developed over 35 years balances experience, integrity and tremendous work ethic. Dean Parisian is a member at the White Earth Reservation of the Minnesota Chippewa Tribe, a former NYSE and FINRA arbitrator and trader who began his career with Kidder Peabody and later worked for Drexel Burnham Lambert in LaJolla, CA. His philanthropic interest is in Native American education and he's endowed a significant scholarship for Native Americans at the University of Minnesota. His greatest accomplishment includes raising two sons and 26 years of marriage. The Parisian family enjoys outdoor pursuits at Pamelot, their farm in Tennessee and at the Ghost Ranch, their ranch on the Yellowstone River in Montana. For media requests contact the firm via email: ChippewaPartners (at) gmail dot com, on Twitter: @DeanParisian. Global 404-202-8173