You Want The Debt? You Can’t Handle The Debt!

David Stockman, former budget director for President Ronald Reagan, says “I think all hell is going to break loose,” as the result of the Trump tax cut. Past assertions indicate he expects a 40 to 70% stock market collapse, but no idea when. For Stockman it has always been about debt and that we ‘can’t handle the debt’.In 2010, Stockman was a super Bear alarmed by the huge rise in the US Credit market debt to $52 Trillion. Well, today we have roughly $70 Trillion. However, relative to our assets, debt isn’t that alarming. How much debt is too much? We’ll know when banks tighten credit and defaults soar sending the economy into a liquidity induced contraction.

Other well-known analysts and money managers have echoed Stockman’s theme:

The CIO of Guggenheim worries that the strong fiscal stimulus (tax cuts) at a time when the economy is at full employment, may force the Federal Reserve to be more aggressive with interest rate hikes to keep inflation in check and a 3%+ Fed Funds rate he expects in 2019 will be the trigger for a 40% market hit to begin.

Famous trader, Paul Tudor Jones, expects a 40% market collapse starting in 2019 when the expected stock and credit market bubbles burst.

Ray Dalio of Bridgewater expects an asset/debt bubble leading to alarming inflation and credit tightening by 2020.

Well known Bear, John Hussman, expects a 60% plunge in stocks at some ‘to be determined’ point in the future, due primarily to excessive valuations and lofty earnings expectations.

Throughout this nearly 10-year Bull market, false prophets have foretold of doom and gloom around the bend. Certainly, this chorus of more credible Cassandras may be correct and gain the investor following that sends equities plunging. Remember Cassandra was the beautiful daughter of Troy’s king who was blessed with the gift of prophecy and cursed with no believers. We’ll see when credit and earnings reverse their uptrend to join the doom and gloom crowd. 2019-2020 could certainly be a top (as we have also alluded to in the past), but instead of forecasting a bubble and credit stress, let’s wait for them to appear. China and the mid-term elections are the primary concerns for us in coming months.