In our effort to keep you informed as to what we're thinking in the here and now we're forever highlighting herein the at-the-moment trends and developments that instruct our entries into, exits out of, and hedges on various asset classes and securities. Underneath it all of course is the broad macro picture, global general conditions, if you will, that command our attention (analyzing, interpreting, testing, hypothesizing) on virtually a 24/7 basis.
Yes, no doubt, we live in times that are indeed unique to you and me. However, as history has a way of rhyming, it turns out that times like the present have in fact played out in the past. Which of course makes the intense, ongoing study of history a mandatory function for a firm like ours -- as it aids us in gauging the go-forward probabilities with regard to inflation, deflation, interest rates, currencies, commodities, stocks, bonds, etc.
The raging conversation among deep macro thinkers these days is around the efficacy of monetary policy, and of fiscal policy, and what it all means in the inflation vs deflation debate.
The chart below will give you a sense of the modern-history uniqueness of the situation we find ourselves in. Grey shaded areas denote past recessions, the blue line represents corporate debt to GDP, the red line represents interest rates (3-month TBill):
Notice how debt tends to decline when things get tough, but each short-term cycle resolves with a higher level relative to where it began. I.e., existing debt at the beginning of each new expansion is higher than it was at the beginning of the last. And note how interest rates are now nearly as low as they can go, without going negative.
Now let's stretch out the graph and capture the past 100 years: