CMG AdvisorCentral

Tactical investing news, views and resources for financial advisors

TwitterGoogle+Linkedin
  • Blog
    • Contributors
  • Advisor Resources
  • About CMG
    • Sitemap
  • Events

Debt and Demographics – Two Powerful Ds

Posted on 10.02.17 |

From On My Radar (September 29, 2017):

The global economy continues to improve.  Recession probability for the U.S. remains minimal in the next six to nine months.  Europe’s economy is on better footing.  Risks persist, including North Korea, a sharp slowdown in China, fiscal dysfunction in the U.S. (e.g., tax cuts, fiscal spend), and growing protectionist risks to global trade.  Debt remains a significant headwind to growth as can be seen in this next chart.

Total Credit Market Debt-to-GDP

Here’s how to read the chart:

  • The chart looks at a number of growth factors.
  • For example, nominal GDP (before inflation is factored in) is lowest when Total Credit Market is above 318% Total Debt-to-GDP.
  • The blue line tracks the Total Debt-to-GDP ratio over time.
  • Note the upper dotted “high debt” line at 318%.
  • The yellow highlights show the growth when in the high debt zone.
  • Note how much better growth is when in the low debt zone. Also note that Total Debt-to-GDP peaked in late 2009 but remains high.

Source: Ned Davis Research

Also note the very last data box “Non-Financial Productivity.”  Overall GDP growth comes from the total number of workers multiplied by their collective productivity.  More workers producing more equals greater growth.  With aging demographics (typically people moving into their lower spending years… they have a lot of stuff and kids out of the house) and fewer workers… you can see the pressure it can put on growth.  And then with debt to be repaid, how much extra money is there to spend on things.  Growth suffers.

Two Ds: Debt and Demographics are headwinds to growth.  It is going to be hard for corporations to grow earnings much faster than GDP.  Some will, of course, but in the aggregate, it’s a headwind and we are seeing it consistently in the low growth GDP stats.  What we really need is Dedication, Determination, and Discipline.  Let’s tell that to our representatives in Washington.

READ MORE

Categories: Global Economy Tags: Debt, On My Radar, recession, Steve Blumenthal, The Fed

Fed Leaves Interest Rates Unchanged; Expresses Confidence in Economy

Posted on 05.04.17 |

Following a two-day meeting of the policy-making Federal Open Market Committee (FOMC), the Federal Reserve held current interest rates steady, but the central bank is likely to raise rates in the coming months (possibly in mid-June).  Fed officials are not worried about the slow pace of growth during the first quarter of 2017.  (U.S. GDP grew at an annualized rate of 0.7 percent.)  The Fed said the slowdown was “likely to be transitory.”

“Inflation measured on a 12-month basis recently has been running close to the committee’s 2 percent longer-run objective,” the Fed said.  Household spending rose “only modestly” but the fundamentals underpinning consumption growth “remained solid.”

Declines in the unemployment rate has been the primary driver behind the Fed’s recent rate increases.  The unemployment rate fell to 4.5 percent in March, the lowest level since 2007.  (The Labor Department will release the April jobs report on Friday.)

Categories: Global Economy, Monetary Policy, Tactical Investment Strategies Tags: Debt, Interest Rates, Rates, Tactical Investing, The Fed

A Look at U.S. Domestic Debt

Posted on 02.13.17 |

Total Credit Market Debt in the U.S. is 352.4% of GDP.  Post the peak in 2008 at north of 380%, this chart shows deleveraging has begun.

Recall the Reinhart/Rogoff study that debt greater than 90% of GDP slows growth.  We’ve certainly witnessed slow growth in the 2% range for the last 16 years.  Debt’s a drag on growth.

0210-06

Source: Ned Davis Research

READ MORE

Categories: Global Economy, Tactical Investment Strategies Tags: Debt, GDP

Real Implications of Reduced Pension Fund Returns

Posted on 12.19.16 |

pension_cartoon1Last week, the investment staff of CalPERS — the $300 billion California pension fund — announced that they want to reduce its target of 7.5 percent annual returns.  According to Chief Investment Officer Ted Eliopoulos, achieving a 7.5 percent annual return is no longer realistic.  Holy cow!

The implications of this proposal, if adopted, are significant and “would trigger more pain for cash-strapped cities across California and set an increasingly cautious tone for those who manage retirement assets around the country.”

Can you imagine how many people are going to be affected?  Here’s the bottom line.  The pension system, across our great nation, is underfunded and in trouble.

READ MORE

Categories: Equities, Fixed Income, Tactical Investment Strategies Tags: Debt, Equities, On My Radar, pension funds, pensions, Stephen Blumenthal, Steve Blumenthal, Stocks, Tactical Investing, valuations

Dalio: Are We at the End of a Long-Term Debt Cycle?

Posted on 10.24.16 |

10-21-00Ray Dalio established Bridgewater Associates in 1975.  With $150 billion under management, Bridgewater is the largest hedge fund in the world.  The firm has approximately 350 institutional clients, including public and corporate pension funds, university endowments, charitable foundations, supranational agencies, sovereign wealth funds and central banks.

In 2015, Bridgewater published Economic Principles, a research paper discussing the driving forces behind the economy, and explains why economic cycles occur by breaking down concepts such as credit, interest rates, leveraging and deleveraging.  Here at CMG, our interns are required to read Economic Principles, among other books.  Though lengthy, it is the best working model on global economic cycles, debt, education, inflation and more I have read.

Dalio was interviewed by CNBC’s Andrew Ross Sorkin at last month’s CNBC Institutional Investors Delivering Alpha Conference.  In this week’s On My Radar, we summarize the interview and address Dalio’s question, “Are we at the end of a long-term debt cycle?”

READ MORE

 

Categories: Monetary Policy, Portfolio Construction, Tactical Investment Strategies Tags: Debt, On My Radar, Stephen Blumenthal, Steve Blumenthal, Tactical Investing

The Quest for Yield

Posted on 10.10.16 |

Yields are at 5,000-year lows.

71% of the world’s government bonds are yielding less than 1%.  33% yield less than 0%.  In a picture it looks like this:

10-07-12

Source: Bloomberg; JPMorgan Asset Management, BofA Merrill Lynch

Risk is being overlooked in HY bonds.  Yields on high yield debt are close to the same yields on less risky loans.  The chase for yield has driven investors to riskier asset classes.

I am anticipating a once-in-a-generation buying opportunity in HY bonds.  While the trend this week is up, continue to invest with the trend.  Move to the safety of cash or Treasury Bills when the trend crosses down.

Click below for a great chart showing what a 1% increase in interest rates does to bond prices.  Show it to your clients!

READ MORE

Categories: Fixed Income, Monetary Policy, Tactical Investment Strategies Tags: Bonds, Debt, fixed income, high yield, On My Radar, Stephen Blumenthal, Steve Blumenthal, Tactical Investing, The Fed, Trade Signals, valuations, Zweig Bond Model

Global Debt Jubilee?

Posted on 09.20.16 |

When you borrow from tomorrow to spend today, that leveraged spending is good for growth.  At some point, you reach an end to just how much debt you can take on.  Reinhart and Rogoff suggest that threshold, based on hundreds of years of study, is 90% debt-to-GDP.  At some point, you cross a line. Take a look at the chart below.

9-16-9

I believe we are in a low growth, deflationary-pressured world until we solve and reorganize the debt mess.  A global debt jubilee?  We have a serious problem to solve and there is little motivation at this point to get started.  The markets may just force that hand.

READ MORE

Categories: Tactical Investment Strategies Tags: Debt, ETF Strategists, global debt, Hedging, Risk, Stephen Blumenthal, Steve Blumenthal, Tactical Investing

A World Awash In Debt

Posted on 04.04.16 |

Chinatown San Francisco Steve Blumenthal CMG Capital Management Group Inc.By Steve Blumenthal, CEO, CMG Capital Management Group

I walked through Chinatown in San Francisco last week.  Block after block, store after store, all selling the same stuff (t-shirts, trinkets, etc.).  Each looked exactly like the other.  Susan and I were heading to rent bikes for a trip across the Golden Gate Bridge.  That was wildly fun (and so was the wine and calamari in Sausalito).  Susan asked, “How do they all survive?”  The short answer is that not all will.  I tried to explain it to her this way.

Read More >

Categories: Tactical Investment Strategies Tags: Debt, On My Radar, Steve Blumenthal

Blumenthal Writes About Debt in Forbes

Posted on 02.25.15 |

ForbesCMG Capital Management Group CEO Steve Blumenthal takes a sobering look at debt across the globe in his latest Forbes article Creative Destruction And Managing The Risk of Global Debt. Excerpt:

Read More >

Categories: Tactical Investment Strategies Tags: Debt, Forbes, Steve Blumenthal

China Flashing Red Part II

Posted on 09.03.14 |

PJ Grzywacz President, Chief Compliance Officer, CMG Capital Management Group

PJ Grzywacz
President & CCO
CMG

In last month’s post, we highlighted real estate and slow growth warning signs of what seems to be an inevitable economic crash in China. The scariest part about these flashing signs is that there are plenty more indicators we hadn’t touched on. Let’s look deeper into some of the unemployment and debt issues China faces as it moves towards a tipping point of what could be an economic crisis.

  • Fewer workers moving to cities:  The workforce contracted in 2012 and 2013 by 3.45 million and 2.27 million workers, respectively. The Japanese bank, Nomura, states that the number of migrant workers has halved from 12.5 million to 6.3 million over the past four years.
  • Debt, debt and more debt:  Total bank debt has grown from $14 trillion in 2008 to $25 trillion today.  This represents the equivalent of adding the entire US banking system in the past 6 years.  A recent S&P report in June announced that China now has the largest corporate debt market in the world (although there are some questions regarding the validity of data).  Furthermore, the Bank for International Settlements, has indicated in its recent annual report that China’s financial system is “flashing red” as private sector debt to GDP is 23% higher than its long run norm.

Read More >

Categories: Global Economy, Tactical Investment Strategies Tags: Debt, economic crisis, Global Banking

Top Posts

  • Building A Hunker Down ETF Portfolio - Blumenthal at Barron's
  • Blumenthal in WSJ on Valuations And Forward Returns
  • CMG's Total Portfolio Solution Whitepaper Free Download
  • CMG Adopts GIPS Standards Verified By Ashland Partners
  • Charting The New Bull Market in Gold - Blumenthal in Forbes

Categories

  • CMG News
  • Conferences
  • Equities
  • Fixed Income
  • Global Economy
  • Market Snapshot
  • Marketing
  • Monetary Policy
  • Portfolio Construction
  • Practice Management
  • Tactical Investment Strategies
  • top posts

Archives

Browse the blog A-Z

CMG CAPITAL MANAGEMENT GROUP, INC. • 1000 Continental Drive, Suite 570 • King of Prussia, PA 19406 • P:610.989.9090 • E:advisors@cmgwealth.com

©2018 Capital Management Group, Inc, All Rights Reserved

IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended and/or undertaken by CMG Capital Management Group, Inc (or any of its related entities-together "CMG") will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. No portion of the content should be construed as an offer or solicitation for the purchase or sale of any security. References to specific securities, investment programs or funds are for illustrative purposes only and are not intended to be, and should not be interpreted as recommendations to purchase or sell such securities.
Certain portions of the content may contain a discussion of, and/or provide access to, opinions and/or recommendations of CMG (and those of other investment and non-investment professionals) as of a specific prior date. Due to various factors, including changing market conditions, such discussion may no longer be reflective of current recommendations or opinions. Derivatives and options strategies are not suitable for every investor, may involve a high degree of risk, and may be appropriate investments only for sophisticated investors who are capable of understanding and assuming the risks involved. Moreover, you should not assume that any discussion or information contained herein serves as the receipt of, or as a substitute for, personalized investment advice from CMG or the professional advisors of your choosing. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisors of his/her choosing. CMG is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.
This presentation does not discuss, directly or indirectly, the amount of the profits or losses, realized or unrealized, by any CMG client from any specific funds or securities. Please note: In the event that CMG references performance results for an actual CMG portfolio, the results are reported net of advisory fees and inclusive of dividends. The performance referenced is that as determined and/or provided directly by the referenced funds and/or publishers, have not been independently verified, and do not reflect the performance of any specific CMG client. CMG clients may have experienced materially different performance based upon various factors during the corresponding time periods.
Hypothetical Presentations: To the extent that any portion of the content reflects hypothetical results that were achieved by means of the retroactive application of a back-tested model, such results have inherent limitations, including: (1) the model results do not reflect the results of actual trading using client assets, but were achieved by means of the retroactive application of the referenced models, certain aspects of which may have been designed with the benefit of hindsight; (2) back-tested performance may not reflect the impact that any material market or economic factors might have had on the adviser’s use of the model if the model had been used during the period to actually mange client assets; and, (3) CMG’s clients may have experienced investment results during the corresponding time periods that were materially different from those portrayed in the model. Please Also Note: Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that future performance will be profitable, or equal to any corresponding historical index. (i.e. S&P 500 Total Return or Dow Jones Wilshire U.S. 5000 Total Market Index) is also disclosed. For example, the S&P 500 Composite Total Return Index (the “S&P”) is a market capitalization-weighted index of 500 widely held stocks often used as a proxy for the stock market. Standard & Poor’s chooses the member companies for the S&P based on market size, liquidity, and industry group representation. Included are the common stocks of industrial, financial, utility, and transportation companies. The historical performance results of the S&P (and those of or all indices) and the model results do not reflect the deduction of transaction and custodial charges, nor the deduction of an investment management fee, the incurrence of which would have the effect of decreasing indicated historical performance results. For example, the deduction combined annual advisory and transaction fees of 1.00% over a 10 year period would decrease a 10% gross return to an 8.9% net return. The S&P is not an index into which an investor can directly invest. The historical S&P performance results (and those of all other indices) are provided exclusively for comparison purposes only, so as to provide general comparative information to assist an individual in determining whether the performance of a specific portfolio or model meets, or continues to meet, his/her investment objective(s). A corresponding description of the other comparative indices, are available from CMG upon request. It should not be assumed that any CMG holdings will correspond directly to any such comparative index. The model and indices performance results do not reflect the impact of taxes. CMG portfolios may be more or less volatile than the reflective indices and/or models.
In the event that there has been a change in an individual's investment objective or financial situation, he/she is encouraged to consult with his/her investment professionals.
Written Disclosure Statement. CMG is an SEC registered investment adviser principally located in King of Prussia, PA. Stephen B. Blumenthal is CMG's founder and CEO. Please note: The above views are those of CMG and its CEO, Stephen Blumenthal, and do not reflect those of any sub-advisor that CMG may engage to manage any CMG strategy. A copy of CMG's current written disclosure statement discussing advisory services and fees is available upon request or via CMG's internet web site at (http://www.cmgwealth.com/disclosures/advs).