"It’s The Economy, Stupid." Not According To Aggressively Allocated Stock Investors

In the 1980s and early 1990s, Japan’s economy was nothing short of spectacular. Countries around the globe endeavored to emulate it. Total Quality Management. Just-In-Time. Reengineering. Those “buzz words” for business had even found their way into the training practices for the U.S. Navy.

Since 1992, however, Japan’s economy has stagnated. The value of goods and services produced by the nation (a.k.a. GDP) has averaged less than 1% per year.

In the same period, Japan’s debt has skyrocketed. The country’s debt-to-GDP has increased from less than 100% to somewhere in the vicinity of 230%. And its stock market since 1992? A buy-n-holder’s worst nightmare.

$NIKK

 

Relatively speaking, the U.S. economy has been a bright spot. It has been growing at an approximate rate of 2% in the the 21st century. That’s quite a bit slower than the 3% GDP norm that economists had come to expect. Nevertheless, many have grown comfortable with the notion that expansion at 2% is far better than Japanese or European-style lethargy.

Until now.

U.S GDP grew at an approximate clip of 1.2% in the second quarter. Meanwhile, growth in Q4 of last year was revised down to 0.9% and growth in Q1 of this year was revised down to 0.8%. In other words,economic growth stateside has expanded at less than 1% over the last 9 months.

Unfortunately, it is not just the economy’s stall speed that reminds some folks of Japan’s malaise. Our debt levels are soaring through the roof as well. U.S. government debt-to-GDP has reached 104%. Even more alarming? government debt-to-revenue (federal tax) is at 979%. For the 34 countries in the Organization for Economic Cooperation and Development (OECD), that’s the 2nd worst debt reading in the world. (Japan is the worst offender at 2359%.)

U.S Debt to GDP

 

Super-slow growing economies? Unsustainable debt levels? Japanese stocks are down roughly 5% and European stocks are down roughly 10% due to these types of concerns. And yet, U.S. stocks have managed to climb 7.5% in spite of them.

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Disclosure: ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered ...

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