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19 November 2019


Tell me, how does this feel? The US federal budget balance now exceeds USD 1,000 billion of debt. Apple’s market cap exceeds that of the entire US energy sector and Walt Disney’s market cap trumps the sum of those of the top five eurozone banks, BNP, Santander, ING, Intesa and Crédit Agricole.

In other words, the US government is ramping up debt but the corporate sector, at least those parts selling consumer content and luxury goods, is doing just fine. Guess where Bernie Sanders or Elisabeth Warren will be looking for funds if one of them makes it to the White House. Overall, the staggering debt pile is the most worrying bit. If it wasn’t for quantitative easing, there would most likely be less enthusiasm for bonds and equities. From 2016 until today, the US debt balance has grown from around USD 300 billion to USD 1,000 billion. You have to go back all the way to 2008 and 2009 to see such a steep budget deficit. In those days, the Great Financial Crisis was at the origin of the huge deficit, today it’s President Trump.

How much leeway is there for infrastructure works unless higher taxes are applied elsewhere? And if Trump gets re-elected, what margin is there left for additional fiscal largesse? Right now, such worries seem to be far away. There is a sense of optimism that in the short term economic momentum can and will rebound. And when you compare the PMI new orders component to the inventory ratio, most likely PMIs have room to move higher in the next few months. Hence, market fear has decreased, and with it the appetite for gold which, by the way, has seen the biggest weekly outflow since December 2016. In the past three weeks, flows have also been returning to equity. There is much more potential if huge past bond inflows revert and go into equity.

Optimism is growing, but has not hit maximum, let alone exuberance. Before you know it, Disney’s market cap could trump the entire market of, say, a country like Belgium. There’s only 20% to go for Disney. Call it the power of the mouse.