5 June 2017: Debt

Last Friday, we talked about black swans in this place: events that are unknown to us and have the ability to bring down stock markets. We asked you to be on the lookout for a black swan. A candidate might be a report that was released by the New York Federal Reserve last week. US collective household debt balances totaled $12.73 trillion in March 2017. That is the highest level since its peak of $12.68 trillion in 2008. The nature of the debt has somewhat changed: loans are less housing-related than they were in 2008 (remember: sub-prime mortgages). Auto and student loans are now the main categories of debt. Stock prices are high at the moment and conceal the true debt levels of US households. If stock prices fall in the future, that might cause a chain reaction. Because they could bring down the credit rating of a number of households, which then would be forced to sell stocks at a bad time. Forced sales would lower stock prices even further, etc.

All major US indices closed at record highs last Friday. The Dow gained 0.29%, the S&P added 0.37% and the NASDAQ closed no less than 0.94% higher. Volatility eased, but didn’t see its lowest scores at the end of the session: the VIX reached intraday levels of as low as 9.58, but closed at 9.75 points. XIV ETNs could not go any higher after their rise during the previous session and lost 0.34%. UVXY ETFs gained 0.38%.
Danny Daredevil made a small gain and his RSS rose to 376%. Adventurous Anny‘s RSS remained at 39%. Solid Suzy and Lazy Larry took a small step back: their RSS dropped to 21.6%.
None of our models gave a trading signal at the end of Friday’s session.

Model Holds Start date

RSS

YTD

QTD

AAR

Danny Daredevil UVXY 1 January 2016

375.63%

17.99%

1.46%

199%

Adventurous Anny Cash 6 March 2017

39.23%

39.23%

14.33%

289%

Solid Suzy XIV 6 March 2017

21.55%

21.55%

10.98%

123%

Lazy Larry
XIV 6 March 2017

21.55%

21.55%

10.98%

123%

RSS = Return Since Start | YTD = Year-To-Date | QTD = Quarter-To-Date | AAR = Average Annual Return

 

Meanwhile in Florence

Panoramic view of the city from the Bardini Gardens. A man, contemplating besides a music stand. Next to him, with her back toward him, sits a woman in a robe. Both motionless. A couple of tourists, standing near a statue, enjoy the view.
Then, as if by signal, the scene comes to life. The man turns his back to the panorama, places the music stand in front of him, and puts a flute to his lips. The woman stands up and walks up to him. As the man starts playing a composition by Ennio Morricone, the woman starts a choreography. Within moments, an audience has formed. During a couple of minutes, the viewpoint at the Bardini Gardens is the magical decor of a plein air concert.