Most Important Chart Of The Century For Investors?

by Shawn Langlois of Marketwatch

Price changes, ballooning debt, cash vs. stocks – and one that may just be an investor’s ‘theory to everything’

“Oh, that’s all, huh? No pressure.”

That’s basically the initial response we got when we asked an assortment of financial and economic types for what they consider to be “the chart of the century” – in other words, the chart that’s been hugely influential to their perspective, and positions.

Ultimately, these students of the markets delivered. Here are their nominees for the most important illustrations of this era.

The gloom-and-doom chart: Ballooning debt

Wolf Richter, the man behind the Wolf Street blog, had no trouble zeroing in on the theme for his pick for “chart of the century”: U.S. debt.

He did have trouble choosing whether the chart should show ballooning student loans, or ballooning government debt. Either way, ballooning’s the key, as he predicts both narratives will continue to raise alarms. When push came to shove, he opted for the government debt chart.

Here is MarketWatch’s version of that chart, emphasizing the quickening pace of $1 trillion increments:

It took only six months for the U.S. national debt to go from $20 trillion in September of 2017 to top $21 trillion in March, a quick clip that has little precedent over the nation’s recent history.

Ballooning debt (and here’s a history of how we got to $21 trillion, for what it’s worth) is here to stay. The Committee for a Responsible Budget projects trillion-dollar deficits returning permanently by next year, and debt exceeding the size of the economy within a decade.

The worrisome trendline: Consumer spending and debt

Spending and debt are also the theme of the chart selected by Lance Roberts, chief strategist for Clarity Financial. But his chart focuses on the consumer side of that picture.

Visualized here is the widening gap between cost of living, and the income and credit Americans have at their disposal. Up until the late 1980s, disposable income, savings and debt funded the standard cost of living. Since then, however, this chart shows that hasn’t been the case – and the national personal savings rate has dropped from above 10% in the 1970s to below 4% today.

This widening consumer spending gap could have severe ramifications for the entire economy, according to Roberts.

“With a deficit between the current standard of living and what incomes, savings and debt increases can support, expectations of sustained rates of stronger economic growth, beyond population growth, becomes problematic,” he explained.

For investors, that poses huge risks in the market.

 

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“While accounting gimmicks, wage suppression, tax cuts and stock buybacks may support prices in the short-term, in the long-term the market is a reflection of the strength of the economy,” Roberts said. “Since the economy is 70% driven by consumption, consumer indebtedness could become problematic.”

The theory-to-everything chart: SPX vs. 10-year

Sven Henrich of the Northman Trader blog is prett