Global debt hit a new record of $224 trillion in the fourth quarter.
That figure was $150 trillion in 2013 and $75 trillion in 2003, according to BofA Securities strategist Michael Hartnett.
In the last 10 years, “government debt increased 60% to $83 trillion, corporate debt increased 50% to $86 trillion, household debt increased 40% to $55 trillion,” he wrote Hartnett in your weekly Flow Show note.
Fiscal excess and the “government bubble” remain big explanations for the “exceptionalism” of US growth, he said, noting that the 7.5% of GDP fiscal deficit under President Joe Biden and the 6.6% deficit under President Donald Trump were the largest since the Great Patriotic War. Depression/World War II.
In fact, “governments and companies issued more debt in January than ever before ($760 billion… of which $410 billion is from the government and $350 billion from companies),” he added. The bottom line is that the cost of capital is “not falling” much with a major recession.
Hartnett also noted that the traditional “master of bonds, servant of stocks” narrative appears to be changing, and that only happens in times of bubbles and deflation.
Treasury yields (TBT) (TLT) (SHY) (IEI) (IEF) fell and the Nasdaq (NASDAQ:QQQ) rose “big time” in the fourth quarter, “but the script flipped to 'Nasdaq up = yields up'” in the first four weeks of 2024, Hartnett said.
“That is the price action that occurs after recession (2009) or with bubbles (1999),” he added.
Investors who are in favor of “Fed cuts/ai-mania” say the optimal strategy is a bar of bubble stocks and very distressed assets, which were emerging markets (EEM) in 1999 and probably China (MCHI) (FXI) (CQQQ) (GXC) or small cap (IWM) (SCHA) in 2024.