Over My Shoulder | Mauldin Economics

Over My Shoulder

Hoisington Macroeconomic Analysis

May 7, 2018

Why You Should Read: Lacy Hunt's macro analysis runs counter to Wall Street's optimism. In this chartbook, he looks at important indicators from a long-term perspective and finds plenty of reason to worry. It's important to wrestle with his contrary view.

(Note: Lacy explained many of these charts in his most recent quarterly review, which you can re-read here.) 

Key Points: 

  • (Page 2) Debt isn't stimulating growth like it used to. The amount of GDP each dollar of corporate debt produces is now back down where it was at the last three recessionary troughs, and near all-time lows.
  • (Pages 6 and 8) The money supply isn't growing and velocity of money is at its lowest since 1949. Both indicate slowing economic growth.
  • (Page 9) Vehicle sales appear to have topped out in 2015, near the same point they stalled in the 2001 recession even though population has grown considerably since then. 
  • (Page 10) Year-over-year percent change in bank credit is down to the 2.5% area, which in the past we saw only in recessionary conditions.
  • (Page 19) Gross federal debt as a percentage of GDP is nearing 100%, almost double the 55% average since 1952. Financing this debt will likely divert capital from more productive private sector uses.
  • (Page A-3) Real disposable personal income per capita, viewed as ten-year percentage change, is below 1%. This is not consistent with sustainable consumer spending growth.
  • (Page A-4) Contrary to the strong job market we hear about, year-over-year percent change in nonfarm payroll employment has been trending down since 2015. 

Bottom Line: All these indicators point to a slowing economy and approaching recession, not the accelerating growth we hear about elsewhere. 

-John Mauldin

Download - 180507_OMS_Hoisington-chartbook.pdf

Jesse Felder: The US Stock Market’s Impressive Outperformance May Be Coming To An End

May 4, 2018

Why You Should Read: When two top-notch analysts reach the same conclusion for different reasons, you want to pay attention. That's what just happened with Louis Gave, whose report we shared earlier this week (click here to view), and now Jesse Felder. Both think US stocks will likely underperform emerging markets in the near future.

Key Points:

  • The Federal Reserve's QE programs drove US stock outperformance vs. the rest of the world since 2009. With the Fed now reducing its balance sheet, US stocks are vulnerable to reversal as well. 
  • Using market-cap-to-GDP ratio, the US is now the most expensive developed market in the world - more than the dotcom mania and even Japan's 1990 peak.
  • The BRIC equity markets (Brazil, Russia, India and China) are all far cheaper than the US currently.
  • Momentum indicators show a bearish divergence developing that suggests long-term exhaustion of US outperformance. 

Bottom Line (quoting Felder): "If the price you pay determines your rate of return, as Warren Buffett likes to say, then investors overweighting U.S. equities today are likely to be very disappointed with their relative returns in the future. What’s more, technical signs suggest this disappointment could begin sooner rather than later."

-John Mauldin

Download - 20180504_OMS_FelderReport.pdf

Charts That Matter, May 2, 2018

May 2, 2018

The topics that matter in this week’s issue:

  • The US economy is addicted to debt
  • Stock market reactions to the yield curve show the hazard of using a single indicator
  • Will government spending imperil productivity growth?
  • Time to rethink how we define a “safe stock”
  • Europe manufacturing sector raises some eyebrows

Download - 20180502_CTM.pdf

Louis Gave: Emerging Markets and Energy

May 1, 2018

Friends, this week we welcome many new Over My Shoulder readers and also my new co-editor, longtime associate Patrick Watson. Together we're going to make this service even more valuable to you.

As part of that, these introductions will become more focused. The goal is to give you a quick summary of each item along with the key conclusions. I want you to have the main benefits even if you can't read the full story immediately.

Why You Should Read:  Gavekal's Louis Gave shows how understanding emerging markets is critical in this volatile market.

Key Points:

  • Emerging markets have historically been "high-beta" plays on developed markets - directionally similar but they rise more and fall harder. 
  • This year has been different. EM benchmarks are outperforming the S&P 500 with lower volatility.
  • Sector weightings explain some of this. Emerging markets have less exposure to technology and more to energy. That's helpful when tech stocks are lagging and energy stocks gaining steam... as both are doing now.

Bottom line: With crude oil at prices not seen since 2014's big downturn, and tech stocks suffering from trade-related fears, Louis thinks overweight emerging markets and energy will be a good approach in an otherwise tricky 2018.

- John Mauldin

Download - 20180501_OMS_Gavekal.pdf

Charts That Matter, 2018-04-25

April 25, 2018

This week in Charts That Matter we have a look at:

  • Price volatility in the first hour of trading
  • The housing industry growth rate and the influence of the Millennials
  • The price-versus-value proposition and what it means for future returns
  • “Thin-air credit” and its relation to consumer spending
  • Another valuation ratio hits a 17-year high

Download - 20180425_CTM.pdf

Samuel Rines: “Dollar on the Rise”

April 23, 2018

This is a quick note from Sam Rines on the direction of the dollar, familiar to most OMS readers and really a wickedly brilliant young economist, young being relative on my part.

Let me note that I'm not sure I agree 100% with Rines, as far as correlation and causation, because there's something happening out in the macro world that is blasphemous to "accepted" macroeconomic theory. The Japanese Yen got stronger as their deficit got bigger. But maybe that's just a Japanese phenomenon. But there has been a relationship between the deficit and the strength of the dollar for almost 30 years.

Download - 180423_OMS_Avalon.pdf

Charts That Matter, 2018-04-18

April 18, 2018

In Charts That Matter this week you'll find:

• Global debt sets a new record

• The worst start to Q2 since 1929

• The interest cost of US debt will skyrocket.

• US financial conditions tighten in 2018

• What is the VIX telling us about the current P/E of the S&P 500?

Download - 180418_CTM.pdf

David Kotok: “Trump, Trade, T, T, T”

April 17, 2018

My friend David Kotok writes very pointedly about the current trade tiff between the US and China, Trump and Xi. I think you know by now that I am basically a free trader. I think my friend Larry Kudlow has a very difficult job in trying to calm the markets while the war of words seems to escalate. Maybe this is a marvelous negotiating strategy, which works very well with real estate deals, but it is not the way it is usually played in international markets. This is very dangerous ground we are treading on. This is a short but very interesting piece.

Download - 0411_Kotok.pdf