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Key News

Key Reports Due (WSJ): 
10:00a.m. Sep Construction Spending: Expected: -0.7%. Previous: Unch.
10:00a.m. Oct ISM Manufacturing Business Index: Expected: 41.5. Previous: 43.5.


“Historically, economists have evaluated the economy’s overall leverage in terms of nonfinancial debt. The theory for this is that the financial sector takes on debt in order to make loans for the nonfinancial sector; thus, to include financial debt would result in double counting. The logic of that approach is not valid in the current situation. The leverage in the financial system, including the financial intermediaries and government sponsored entities like Fannie and Freddie, is clearly excessive and the source of much distress in the economy. When viewed on this more comprehensive basis, total leverage of the U.S. economy surged to an all time peak for the past 92 years that records have been kept. Total U.S. debt in the second quarter jumped to 357% of GDP, up from an average of 195% from 1916 to the present. In less than five years, the total debt to GDP ratio jumped more than 50%.

“As the chart indicates, 300% was the 1933 high of the total debt to GDP ratio. The current peak, however, was reached due to a surge in debt, while the 1933 peak reflected a dramatic fall of nominal GDP, the denominator of the ratio. The new record level of debt in the second quarter reflected the worsening situation among corporations, both financial and nonfinancial. Clearly the magnitude of the debt problem is unprecedented and years, not months or quarters, will be required to bring debt into some reasonable relationship with economic activity. As long as this
situation persists, the U.S. faces a difficult economic environment. This is due to the fact that over the past four decades every additional dollar of debt created 86 cents worth of GDP, and with debt shrinking, GDP will struggle to generate positive growth.”

                                  Hoisington Management Third Quarter Review & Outlook

FX Trading –Risk Aversion Ebbs This Morning…Comdol Time?
Gold is sharply higher this morning…up $20 bucks.  Stocks globally are doing well and premarket SPU is bidding a bit higher.  Oil is trying to turn higher. 

Ebb in risk aversion means a flow of risk appetite by definition.  And risk appetite may mean it’s time for commodities, which have been body slammed, to make a decent correction; maybe of the multi-week variety.  Thus, maybe it’s time to own some Comdols again i.e. commodity dollars, fist three letters of each word,  for those not yet super-fx-trader slang literate. 

The chart above is a 240-min chart of oil, gold, and Aussie.  All have broken above their nasty down trends of late on this near-term basis.