Bull market in debt

September 20, 2018

Last weekend was the "official" 10 year anniversary of the Great Financial Crisis. (This was when Lehman Brothers failed. Long-time SEM readers know the crisis actually began in 2007 with the failure of a few smaller mortgage brokers.) There has been a plethora of specials surrounding this anniversary. Most were victory laps including appearances by most of the major players that both helped create the crisis and failed to see it coming until it was far too late. Nearly every expert interviewed declared the world is better off now than it was leading into the financial crisis. Whenever I hear that I have to wonder if these people spent a long weekend in Colorado, Washington, or California with their good friend MJ.


This economic recovery has been the worst on record, with only a couple of quarters even surpassing the long-term average annual growth rate of 3.1%. While our economic models indicate the next few quarters may be stronger than the long-term average, the growth rate is not sustainable. Even worse, you would think households, corporations, banks, & governments would have learned their lessons about the dangers of too much debt. Instead, all find themselves with significantly more debt than before the financial crisis.


A recently released report from the McKinsey Global Institute highlights the changes in debt. They show all 4 categories worse off than they were before the financial crisis. A staggering $57 Trillion has been added during the economic expansion. To put that in perspective, TOTAL debt was $87 Trillion at the turn of the century.

Debt by itself is not necessarily bad, but when the debt is not used to invest in things that create long-term growth it only serves to pull future spending into the present. There is little evidence any of the groups in the chart have used their debt to invest, but instead have spent money to prop up their short-term financial situation. The debt payments will only serve to slow future spending. With interest rates rising those debt payments will begin to absorb more and more of the future growth. 


The complacency I'm seeing right now is frightening. The market is at all-time highs so everyone seems to believe we can't have another crisis. I'm not sure why, but they all seem to forget that the market was at all-time highs as 2007 came to an end. The same was true in 1929 just before the Great Depression. Using the stock market as a gauge for the health of the underlying financial system is never a good idea. 


I don't know when people will wake up and realize we cannot continue down this path too much longer. When this overload of debt causes the global economy to implode you better have a plan. To learn more about SEM's plan to combat this, drop me an email and we can have a quick chat.


Please reload

Web and Internet news concept with rss f
Featured Posts

Investment Grade Junk

September 11, 2019

Please reload

Recent Posts

January 29, 2020

December 10, 2019

Please reload

  • LinkedIn Social Icon
  • Twitter Social Icon
  • Facebook Social Icon
  • RSS Social Icon

Related Posts

Please reload

© 2016-20 Strategic Equity Management, Inc. dba SEM Wealth Management. Site created by Courtney Hybiak.

This site is for INFORMATIONAL PURPOSES ONLY.  The comments and posts published in the SEM Trader's Blog ARE NOT investment recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.  CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute

Investing in the stock or bond markets involves risk and may not be suitable for all investors. Before making any investment decisions you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists you could sustain a loss of some or all of your initial investment and therefore you should not invest money you cannot afford to lose. You should be aware of all the risks associated with your investments and seek advice from an independent financial advisor if you have any doubts. All investments involve risk including those managed by SEM Wealth Management.

Opinions expressed at www.stratequity.com, www.semwealth.com and semtradersblog.com or the previous Trader's Blog site are those of the individual authors and do not necessarily represent the opinion of SEM Wealth Management or its management. Any opinions, news, research, analysis, prices or other information contained on this website, by SEM, its employees, partners or contributors, is provided as general market commentary and does not constitute investment advice. SEM will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.


The use of this website constitutes acceptance of our user agreement. Past performance is NOT indicative of future results.

***Anywhere performance of SEM's Investment Models is used, please refer to our Performance Snapshot  which contains details of the performance calculations for each of our investment models.***


There is no representation made as to the future results of SEM’s programs or if they will be profitable.

For additional information on the author and SEM Wealth Management, please see our DISCLOSURE DOCUMENT (ADV Part 2).