Bullish Numbers – Wow! – And the Looming Crisis of National Debt – (Oops).

lennyjordanmarketblog.blogspot.com
05Mar17
Bullish Numbers – Wow! – And the Looming Crisis of National Debt – (Oops).

The past week's good news. Totally bullish. Stats Courtesy  of CME, Bloomberg, tradingeconomics.com, +others

US Q4 GDP +1.9% [okay, right?]
US Durable Goods + 1.8% in Jan17 [Not bad]
US Consumer confidence: 114.8 [A whopper. Bear in mind that Dec was 113.3, which was a 15-yr high.]
Chicago PMI: 57.4 [well above the 50.0 mark for expansion]
S&P CCS HPI (whatever that means) housing index, + 5.6% [the feel good factor, compare the consumer confidence number above.]

CONCLUSION : We may be on a roll.

Now for the bad news. With stats like these, interest rates have only one way to go.

Let's start with the UK, with back of the envelope calculations.

Downside = Danger of 10-yr Gilts hitting 4%.

Servicing the UK debt of £1.5tril from current rate of appx 1.2% (current bid yield) to the historic mean of 4% = increase of  appx 3%.

 Now bear in mind that every child born in the UK during 2017 will be saddled with £2,000 to £3,000 of interest payments per year on the national debt , by some estimates. These are only back-of the-envelope calcs.

But if UK interest rates rise to the historic mean of 4%, then that almost trebles the interest payment on the national debt, which puts each UK kid in hock of appx £9,000.

If I’m wrong, then I want to be the first to know.

From Wikipedia:

“In 2012, the British population numbered around 64 million, and the debt therefore amounted to a little over £15,000 for each individual Briton, or around £33,000 per person in employment. Each household in Britain pays an average of around £2,000 per year in taxes to finance the interest.”

Maybe it’s not clear what Wikipedia is saying, so let’s make it clear: Out of a nation of 64mil there are only 30mil working taxpayers.  So we have one-half of the population supporting the other half.
In the words of Bob Dylan, “How does it feel?”

 And LJ asks what are your chances of success while you struggle to pay for the non-working half?
 And what does this mean when (not ‘if’) 10-yr Gilts rates increase from the current 1.2% to the historic mean of 4%?

You don’t want to know, but I’ll tell you anyway. The LJ back-of the envelope calculation purports that the UK debt per person will TREBLE.  Then every working taxpayer will be in hock to appx £100,000.

No wonder that  UK trained doctors are fleeing the country.

US Bad News:

Let’s use the same method in order to figure out the consequences for the US.

Likewise, the States are in debt to the tune of appx $20tril, which according to columnist Mike Patton, works out to be appx $150,000 per head.  So every kid born in the US this year has $150k hanging over his head. Tell me I’m wrong.

But if ten-yr Treasuries go to the Historic mean of 4%, then does that mean that everyone in the US will be in hock to the tune of $300,000?

Tell me I’m wrong.


NEXT WEEK

All eyes on Friday’s NFP. Look for confirmation of this past week’s bullish stats.