A lackluster session is setting up for Tuesday, with oil under pressure after unexpectedly downbeat China export data. So the preference is for bonds this morning, as stocks tilt south. <\/p>\n
Onto our call of the day<\/strong>, which deals with another worry \u2014 a wall of government debt that will be with us for decades. It comes from Bridgewater\u2019s highly regraded co-chief investment officer Bob Prince, who was speaking at the Global Financial Leaders\u2019 Investment Summit on Tuesday, hosted by the Hong Kong Monetary Authority.<\/p>\n Prince touches on asset liability mismatches, such as what was seen during the banking crisis earlier this year. He explains that one big factor behind a crisis is when a certain economic regime exists for an extended period of time and \u201cpeople extrapolate that into the future on the basis of leverage and asset liability mismatches. Then you get a shift in that regime.\u201d<\/p>\n The events of March, which saw the collapse of SVB, Signature Bank and Silvergate, were a perfect example of that, Prince says. Then he turns to what he calls the \u201cbroader effects of a transition from 15 years of abundant free money,\u201d that was first used to battle deleveraging pressures in the financial system in 2008 and then the pandemic. <\/p>\n One long-term effect of that gets particular attention by Prince, who points out how U.S. government Treasury debt to GDP was about 70% in 2008, around where it had been for decades.<\/p>\n \u201cThe after effects of offsetting deleveraging and pandemic, you\u2019ve had a massive wealth shift from the public sector to the private sector and that\u2019s left the government with debt to GDP up from 70% up to 120%. And the particular vulnerability of that is in the debt rollovers and the gross issuance that you\u2019re going to see in the coming decades . You\u2019re stuck with that debt until you pay it off and that means you have to roll it over like anybody else does,\u201d said Prince.<\/p>\n \u201cGross debt issuance will be running at 25% for as far as the eye can see, that means every year you\u2019re issuing 25% of GDP in debt. In 1960, the average amount of debt issuance was 12% of GDP,\u201d he said. <\/p>\n Prince says most people really don\u2019t pay attention to debt rollovers because they just assume those will get done, but notes that when countries have experienced balance of payments crisis in the past, mostly emerging markets, that is because they have been unable to roll over that debt. <\/p>\n In the U.S. case, it\u2019s crucial to look at who is holding the debt, particularly the 27% held by foreign investors and 18% by central banks. \u201cForeign investors would normally be a reliable source of investment but it does heighten sensitivity to geopolitical risk, and so geopolitical risk converges with debt rollovers and gross issuance of the Treasury is an issue that you need to pay attention to in the coming years. <\/p>\n While not an \u201cacute problem,\u201d he says, it\u2019s a lingering one, and when it comes to central banks it\u2019s also unclear whether their holdings also present a \u201crollover risk.\u201d<\/p>\n Prince also touches on the fact that that all that \u201cabundant free money\u201d has fueled a private-equity boom, but with interest rates now at 8% instead of 2% or 3%, \u201cthe pace and transaction cycle is bound to slow,\u201d and they are starting to see that. <\/p>\n \u201cWhen we talk to institutional investors around the world, many of them are experiencing liquidity issues right now and the liquidity issues result from the fact so much money was allocated to private assets and the transaction cycle is slowing,\u201d he said.<\/p>\n MarketWatch 50:<\/strong> Forget U.S. stocks for now. Invest here instead, says Bridgewater\u2019s co\u2013investment chief<\/p>\n A team of analysts at Citigroup led by Nathan Sheets have also weighed in on government debt, telling clients in a new note that \u201cit\u2019s unwise for policy makers to experiment or test\u201d where the threshold for too much debt lies. Here\u2019s their chart showing the bleak trajectory:<\/p>\n <\/p>\n Dirk Willer, head of global asset allocation at Citigroup, said a debt crisis scenario in the U.S. would likely mean a selloff of risk assets globally. He notes that bonds in rival countries may not be the best bet as they don\u2019t always benefit. And both gold and bitcoin underperformed during the U.K. gilt crisis, so those may be out. <\/p>\n Also in attendance at the conference in Hong Kong, Deutsche Bank\u2019s CEO is worried geopolitics could create another market event and Citadel\u2019s Ken Griffin said investors should put money in China.<\/p>\n Read:<\/strong> \u2018Stock-market correction is over\u2019 after broad surge amid \u2018epic\u2019 market rallies<\/p>\n <\/p>\n Stocks SPX Planet Fitness stock Reporting late Thursday, Tripadvisor UBS UBSG, After a decade of turmoil, office-sharing group WeWork The U.S. trade deficit climbed 5% in September to $61.5 billion as imports rebounded. Still to come is consumer credit at 3 p.m. Fed Vice Chair for Supervision Michael Barr speaks at 9:15 a.m., followed by Fed Gov. Christopher Waller at 10 a.m. <\/p>\n The International Monetary Fund boosted its China outlook for 2023 and 2024.<\/p>\n Big banks are cooking up new ways to offload risk.<\/p>\n Retirees continue to flock to places where climate risk is high.<\/p>\n How to know when it\u2019s time to retire<\/p>\n According to this recent JPMorgan survey, two-thirds of investors are ready to start pumping more money into equities, while just 19% plan to increase bond exposure. Also, note that 67% also said they did not expect performance of the Magnificent 7 stocks \u2014 Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla and Meta \u2014 to \u201ccrack before the end of the year.\u201d <\/p>\nThe markets<\/h2>\n
\n DJIA<\/p>\n
\n are trading mostly lower, apart from tech
\n COMP,<\/span>
\n while the 10-year Treasury yield
\n BX:TMUBMUSD10Y
\n also continues to dip. U.S. crude
\n CL.1,
\n
\n is under $80 a barrel after worse-than-forecast China exports signaled more economic bumps in the global growth engine. The dollar
\n DXY
\n is up.<\/p>\nThe buzz<\/h2>\n
\n PLNT,
\n
\n is surging on upbeat results and an improved growth outlook. Uber
\n UBER,
\n
\n is up as earnings beat forecasts, but revenue fell short. D.R. Horton
\n DHI,
\n
\n stock is also getting a boost from results. EBay
\n EBAY,
\n
\n Occidental Petroleum
\n OXY,
\n
\n Akamai Tech
\n AKAM,
\n
\n and Gilead Sciences
\n GILD,
\n
\n after the close. <\/p>\n
\n TRIP,
\n
\n delivered blowout results and the stock is surging, while Sanmina
\n SANM,
\n
\n is down 14% after the manufacturing services provider\u2019s disappointing results.<\/p>\n
\n UBS,
\n
\n
\n swung to a $785 million quarterly loss on lingering effects of its Credit Suisse takeover, but it pulled in $33 billion in new deposits and shares are up.<\/p>\n
\n WE,
\n
\n filed for Chapter 11 bankruptcy protection on Monday.\u00a0<\/p>\nBest of the web<\/h2>\n
The chart<\/h2>\n