August 22, 2016

What will Janet Yellen say on in her August Jackson Hole speech

A newsletter that a research acquaintance of mine recently read noted that Microsoft now has $35.3 billion in debt, up from zero less than a decade ago. Apple also has $85 billion in debt vs. $23 billion less than four years ago, while Cisco has grown its debt 122% to $28.6 billion in less than three years.

Obviously, most of this debt hasn't gone to capex or other organic growth, but to dividends, acquisitions and stock buybacks. Who can blame these companies given how low borrowing costs are?

However, we might be reaching the "productive" debt crescendo here, given that corporate revenues and earnings are in decline. 

The Bottom Line

Add up all of the above and I believe that inflation protection should be the next theme for investors to embrace as we close 2016 and enter 2017.

After all, we're facing:
* Continuing currency debasement.
* Gold prices that are gaining momentum.
* Wage growth that's ticking up.
* Energy and other commodity prices that have seemingly bottomed out.
* U.S. fiscal spending that seems poised to gain steam.
* Both Democratic presidential hopeful Hillary Clinton and Republican rival Donald Trump are proposing huge infrastructure programs.
* Central banks decidedly erring on the side of too much stimulus vs. too little.
* European and Japanese government-bond markets that have no cushion from losses if an exogenous event hits, given that they currently have manipulated prices (i.e., negative yields).

Now if the Fed were to shift gears and definitively signal that U.S. rate hikes lie ahead, that would squash my view here. But that seems unlikely through year's end.

Still, Fed chair Janet Yellen's planned Aug. 26 speech at Jackson Hole will be interesting to hear. We'll want to see what she has to say given U.S. stocks' recent record highs and the futures market putting the odds of even one 2016 Fed rate hike at less than 50/50.