Hi Malcolm,
They show that consumer debt is at a record high and corporate debt is near the record high but is slightly receding. What causes the latter improvement? Bankruptcies.
While it is true that there has been some bankruptcies in corporate America, and some of them quite spectacular and public, the improvement in corporate debt is largely attributable to other factors.
One rather publicized factor has been the transfer of debt and other obligations from the balance sheet, such as pension obligations being passed on to the government.
But the biggest debt reducer has been the liquidation of assets, and then using the proceeds from those assets to reduce debt.
One other factor has been the act of renegotiating debt from higher interest rates to lower interest rates, which (for the most part) hasn't actually reduced the amount of indebtedness, but most certainly has reduced the amount of interest paid (think smaller quarterly debt payments).
And the last factor (also well publicized) affecting corporate debt has been the reduction of total numbers of employees, which interprets into lower benefits payments, lower payrolls, lower payroll taxes, etcetera... (Arguably, this is a reduction in corporate expenses, true, but lower expenses frees up more cash flow for debt reduction, so it's a related factor.)
I can't see an impressive rise in the market in the near future especially as the aging population is less risk inclined.
Not necessarily true... Some, if not many, anxious, would-be retirees may very well try to play a risky game of catch-up by speculating in the markets within their tax-deferred retirement accounts. This phenomena is not unprecedented, as we witnessed it during the late '90s as many people tried to make up for years of under-contributing to their retirement accounts by making a one-time killing in the US markets on speculative stocks. This strategy failed then, and it could very well fail again...
KJC |
