In a letter
published late last year, (link to president’s
corner) we opined most portfolios should reduce
positions, hedge remaining positions, or utilize
protective stop loss orders. The past year has
seen a very flat equity market here in the US,
in our view, courtesy of the Federal Reserve.
However, conditions, which lead to our caution
in the first place, have only worsened.
Since 1994, the
aggregate balance sheet(s) of the world’s
central banks has expanded by ten times, rising
from just over two trillion dollars to twenty
one trillion dollars. This is not some sort of
situation, which is temporarily out of control;
instead, it represents a significant period of
In just the
past eleven years, public debt here in the US
has increased from about $4.2 trillion to nearly
$19 trillion. To put that another way, that is
an increase from about $14,500 per person to
about $50,000 per person. Put it yet another
way, an increase about 36% of gross domestic
product to about 95% of gross domestic
product. What of corporate and personal debt?
Well you probably do not want to know.
Naturally, this is not sustainable.