U.S. Growth Thanks to Debt, Not D.C.

by May 20, 2019Article, Financial Management, News, Opinion, Politics, Stock Market0 comments

My audience may remember how early 2018  I referenced Jeffrey Gundlach, chief executive officer at DoubleLine Capital for saying he believed the market would gain 15 percent before finishing in the red. He certainly called the loss for the year. I enjoyed the opportunity to meet Gundlach in Carlsbad, CA late February this year at a forum for financial advisers where I acknowledged him for the great call. I follow Gundlach for a number of reasons. He is known to be a billionaire in his own right, he oversees more than $130 billion in assets at the firm, according to Yahoo Finance, and he is definitely his own man. Which means, he doesn’t have hierarchy dictating to him that he must constantly beat the drum that everything is just fine, because no matter what, it’s always stocks for the long haul.

Gundlach’s remarks in his investor webcast on May 14, 2019, are particularly noteworthy. You will see that his observations mirror my own. President Donald Trump began declaring, and repeated often since then that, “We have the ‘greatest economy’” ever on Fox News, October 16, 2018. And a lot of people back up his claim. But some observers see things vastly different.

In his webcast, Gundlach said that U.S. growth is derived “exclusively” from government, mortgage, and corporate debt. In fact, had it not been for the debt increase the economy would have already contracted. “Nominal GDP growth over the past five years would have been negative if U.S. public debt had not increased,” said Gundlach. “One thing everybody seems to miss when they look at these GDP numbers … they seem to not understand that the growth in the GDP it looks pretty good on the screen is really based exclusively on debt – government debt, also corporate debt and even now some growth in mortgage debt,” said Gundlach.

“If those non-Treasury debt categories had not grown, either, GDP would have been very negative,” Reuters reported May 15, 2019, from an email following the webcast. Had the U.S. Treasury avoided increasing its debt then nominal GDP would have been negative in three of the last five years, Gundlach opined, “even with all of the exact mortgage, corporate, and student loan growth that occurred.”  He really drove home his point with the math. He asserts nominal GDP growth was 4.3 percent, but that is more than offset by the 4.7 percent growth in total public debt.

Gundlach said again that he doesn’t see the U.S. headed into recession anytime soon, but there are some weaknesses showing up in the U.S. economy. Against the debt drama and Wall Street “addicted to Federal Reserve stimulus,” these are “very, very dangerous times” for the next U.S. recession. He went on to point out the Citi Economic Data Change Index released May 15, 2019, which has fallen to its lowest level since the financial crisis.

Meanwhile, thanks to softer rhetoric by President Trump who, according to me, seems motivated to keep stock losses at 5 percent or less, there are fresh woes over fears Italy’s fiscal situation after Rome said it could break EU fiscal rules to spur employment contends Reuters In a separate May 15, 2019, article. And then there’s China data revealing surprising weak retail sales and industrial output growth.

The good news is investors don’t need to see the future to prepare for it.  For all the “monetary central planning, financial engineering, political lily-gilding can’t hold back the forces of creative destruction forever,” David Stockman wrote to subscribers May 15, 2019. So, by analogy, we all know that football teams typically have eleven men on offense as well as the exact same number of players on defense. To be prepared for the good, the bad, and the unforeseen in 2019, now is the time for investors to develop your defensive strategies.

More Investor’s Intelligence

Defense, Defense

Defense, Defense

Many people are lulled into complacency when the markets turn green. Of course, the latest optimistic story is that the U.S. and China are “moving closer to a deal.” David Stockman, Former OMB Director under Ronald Reagan painted this picture on December 4, 2019, “No...

read more
The Fate of Real Estate; A Silver Tsunami

The Fate of Real Estate; A Silver Tsunami

No one can see the future.  But when it comes to residential real estate we can put floodlights on the road ahead by studying the buying AND selling behavior of American consumers based on age. It is important to look at both sides of the equation. Buyers have been...

read more

200 N. Westlake Blvd., Suite 109

Westlake Village, California 91362-3783

805.495.2077   800.266.2077   888.WHY.BEPOOR

Fax: 805.497.8342


Securities offered through Securities America, Inc. (SAI), Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Investors Advantage and SAI are separate entities.

Important Information from FINRA to consider before transferring your account. Trading instructions sent via email may not be honored. Please contact my office at (805) 495-2077 or Securities America, Inc. at 800‐747‐6111 for all buy/sell orders. Please be advised that communications regarding trades in your account are for informational purposes only. You should continue to rely on confirmations and statements received from the custodian(s) of your assets. The text of this communication is confidential and use by any person who is not the intended recipient is prohibited. Any person who receives this communication in error is requested to immediately destroy the text of this communication without copying or further dissemination. Your cooperation is appreciated.

An informed investor is a smart investor.

Limit your exposure by pinpointing your Risk Number, and craft a portfolio that aligns with your financial priorities.

Get Your Risk Number
Share This

Share This

Share this post with your friends!