The Morning Call--More debt equals less growth

 

The Morning Call

 

10/20/20

 

The Market

         

    Technical

 

            Beware of the impact of target date funds.

            https://blog.evergreengavekal.com/swimming-with-the-target-date-whale/

 

            Monday in the charts.

            https://www.zerohedge.com/markets/black-ish-monday-stimulus-stumble-sparks-big-techs-worst-streak-14-months

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

                          Month  to date retail chain store sales grew faster than in the prior week.

 

September housing starts rose 1.9% versus expectations of up 4.9%; building permits were up 5.2% versus +2.9%.

                          https://www.zerohedge.com/personal-finance/single-family-housing-startspermits-soar-highest-2007

 

                          The October housing index came in at 85 versus consensus of 83.

                          https://www.calculatedriskblog.com/2020/10/nahb-builder-confidence-increased-to-85.html

 

                        International

                           

                            September German PPI was up 0.4% versus estimates of -0.1%.

 

                        Other

 

              Recessions are a good thing.

              https://www.advisorperspectives.com/commentaries/2020/10/19/recessions-are-a-good-thing-let-them-happen

 

              Vehicle miles driven decreased 12.3% YoY in August.

              https://www.calculatedriskblog.com/2020/10/dot-vehicle-miles-driven-decreased-123.html

           

Fiscal Policy

 

  Fiscal cliffication looms if no stimulus deal.

  https://www.nakedcapitalism.com/2020/10/fiscal-cliffication-continues-as-the-election-looms.html

 

            The coronavirus

 

Last week, I went to California.  The plane, both ways, was completely full.  So, it appears that Americans are paying attention to the stats and are deciding to resume life to the extent possible.  More evidence:

              https://www.zerohedge.com/personal-finance/tsa-passenger-traffic-tops-million-sunday-return-normalcy-continues

 

            Bottom line.  As you know, one of my key economic/investment thesis is that the rising level of debt (government, corporate, individual) will stymie economic growth.  Rogoff and Reinhart produced a major study showing that when government debt exceeds 90% of GDP, it became a barrier to growth---the reason being that servicing that debt consumed so much investment capital that what was left was insufficient to fund normal economic growth.  That thesis has played out over the last decade as the long term secular growth rate of the US economy has been subpar.  Looking ahead, this problem is only going to get worse as our political class is adding trillions of dollars of new debt annually.  So, those of you thinking that the US long term secular economic growth (and hence, corporate profit growth) is going to accelerate as the US emerges from the coronavirus crisis, you may want to reconsider.

 

            Here are a couple of articles addressing this issue on more detail.

 

The problem with debt.

https://alephblog.com/2020/10/15/the-rules-part-lxvii/

 

More problems with debt.

https://www.ft.com/content/87efe5a9-4cb6-493b-a31a-f9efd5ddd242

 

Five easily avoidable investment mistakes.

              https://www.usatoday.com/story/money/investing/2020/10/17/5-easily-avoidable-investing-mistakes-beginners-dont-have-to-make/114275778/

 

 

    News on Stocks in Our Portfolios

 

Procter & Gamble (NYSE:PG): FQ1 GAAP EPS of $1.63 beats by $0.20.

Revenue of $19.32B (+8.5% Y/Y) beats by $930M.

 

ATT---a bond substitute.

https://seekingalpha.com/article/4379868-t-stock-bond-alternative?utm_medium=email&utm_source=seeking_alpha&mail_subject=t-at-t-stock-the-bond-alternative&utm_campaign=rta-stock-article&utm_content=link-0

 

What I am reading today

 

            A generation of constitutional illiterates.

            https://www.nationalreview.com/2020/10/congress-v-the-constitution/?utm_source=recirc-desktop&utm_medium=article&utm_campaign=river&utm_content=top-bar-latest&utm_term=fifth

 

            The dysfunctional media.

            https://www.epsilontheory.com/knowledge-takes-the-sword-away/

            How to make this winter not totally suck.

            https://www.vox.com/future-perfect/2020/10/14/21508422/winter-dread-covid-19-pandemic-happiness-psychology

            Once again, only the gophers go to jail while the big boys walk.

                        https://www.zerohedge.com/markets/crime-pays-goldman-strikes-2bn-deal-doj-avoid-all-charges-banks-role-1mdb-scandal

 

                        At last, the French seem to get it.  Follow through?

            https://www.zerohedge.com/geopolitical/fear-changing-sides-france-launches-unprecedented-crackdown-islamic-terror

 

Visit Investing for Survival’s website (http://investingforsurvival.com/home) to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.