Where Are We Headed?
This weekly is on the early side and I am wary of what Friday brings, especially as the debt ceiling saga gives rise to further bond market volatility.
Despite Covid19, rising yields and upwardly rising inflation, default rates are around 3.5% - not far away from their lowest levels since 2007 (before sub-prime mortgages started to blow up). Global debt has soared but Central Banks have been buying it back for Quantitative Easing (QE) and market support. Effectively there is currently a giant safety net designed to prevent companies from collapsing in almost all sectors. Each cycle brings with it an even bigger round of debt stimulus and so the cycle has continued. Covid19 has enabled tech-savvy companies to forge ahead while many others are bailed out. Some are investing in new capital equipment and modernising production but capital investment data is still not strong enough to suggest it is more widespread.
A Wall Street Journal story showed how the median pay of CEOs of over 300 of the biggest US public companies reached $13.7m in 2020. A deeper study by the Economic Policy Institute (EPI) found, on average, they make 320 times more than their typical worker. To put that into perspective the figure was 21 times more in 1965. The study largely tracks the S&P500 index suggesting this compensation is more market-related as opposed to productivity/efficiency related. Furthermore, top earners are not just confined to big, brand names. In fact, the top earners were largely below the radar.
A Goldman Sachs study expects UK GDP to grow 7.8% in 2021, outpacing the US*. Retailers reported their strongest upturn in sales since Sep. 2018, with CBI data showing a 65 point jump; sales volume also rebounded significantly.
* Source 1
Figures from the ONS* show the proportion of employees on furlough, between 5th and 18th April dropped to 13%, compared to 17% two weeks prior. And that credit card spending is now at 98% of its level vs Feb. 2020 (91% week before) whilst reservations at pubs / restaurants was at 62% on 24th April (vs the same Saturday in 2019).
* Source 2
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