The Movable Feast

What keeps our economy going?

Photo: Rita E. Source: Pixabay

Ernest Hemingway lived in Paris as a young man during the 1920s. He called it “a movable feast.” The intellectual fellowship he experienced with notable writers and artists like Ezra Pound, Gertrude Stein, F. Scott Fitzgerald, and many others stayed with him for the rest of his life. He could always look back on that time and draw on its nourishment.

Leverage is our economy’s movable feast. But when we gorge ourselves, it feeds crisis after crisis. Ten years ago individuals borrowed money they didn’t have to purchase homes they couldn’t afford on the premise that someone would come along with more money to buy them out. The housing boom and financial bust threatened the global economy. Twenty years ago, Asian “Tiger” economies were propping themselves with fixed exchange rates and US Dollar borrowings. When the music stopped, there weren’t enough chairs for everyone to sit down, and we experienced the “Asian Contagion.”

Now, corporate junk bond debt is surging. Since the Financial Crisis, the level of global nonfinancial companies rated below investment grade has surged 58 percent, to the highest proportion ever. In the US, nonfinancial companies have levered themselves up to their highest level since 2010.

S&P 500 Nonfinancial Debt/Equity Ratio. Source: Bloomberg

The essential thing to know about a movable feast is that it comes up again and again, even if the specific circumstances change. Hemingway’s movable feast nourished an amazingly productive writer. Let’s hope our economy’s movable feast continues to nourish us, and we can avoid overeating.

Douglas R. Tengdin, CFA

Charter Trust Company

“The Best Trust Company in New England”

By |2018-07-09T08:32:30+00:00July 9th, 2018|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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