Whenever corporate debt-to-GDP has had sharp runups, reaching levels of 40% plus, recessions have followed. Three times since 1986, aggressive taking on of corporate debt has been followed by recessions.
Now, the corporate debt-to-GDP ratio is at its highest ever. Will a recession follow this runup? Most likely. (See A Crisis is Coming for a further understanding of the causes of recessions.)
More ominous, this is occurring at a time when the federal government is projected to run annual $1 trillion deficits for as far as the eye can see, and while the Fed is raising interest rates and is selling assets. Higher interest rates will make all debt more burdensome. The Fed selling assets (scheduled to hit an annual rate of $600 billion by October) and the US Treasury issuing $1 trillion in new debt annually will put still more upward pressure on interest rates.
Corporate America, households (and all debt holders) will pay the price, most likely cut back on spending, adding to recessionary pressures. Credit card debt recently topped the mark reached in April 2008, just before the housing and credit bubbles burst, causing what is now called the Great Recession.
Gold and silver have been in narrow trading ranges all this year and are off their highs. And, a good case can be made for the metals having put in bottoms in December 2015.
Stocks are the same, off their yearly highs, but instead of bottoms being put in tops have most likely been made. Stocks by all measures are highly valued, and gold and silver are undervalued by traditional measures. Investors holding stocks need to consider moving money from stocks to the metals.
People holding large sums of cash should evaluate the situation. The Fed is starting to hit its inflation target of 2%, with no guarantees that it can contain inflation at that level. Higher rates of inflation and signs of a recession make gold and silver buying opportunities.
