Financial Industry Insights from Advisors Asset Management


AAM Viewpoints – "C" You Next Year

2019 revealed how dominant cognitive dissonance is in the investment community than perhaps any we have seen in recent memory. It doesn’t matter at which level of investment one may consider themselves, we are all impacted to some degree by the nature of being human.

Cash at the consumer level rose to $13.385 trillion, according to the Fed Flow of funds, which now stands at 81.5% of the total debt on the consumer level. At the end of the Great Recession the cash as a percentage of total debt stood at 61.9%. This may confound many, however, when seminal events take place a severe reaction in the opposite direction has a historic precedence.

Since 2009 total cash equivalents on households has risen by over $4.788 trillion while total debt on the household balance sheet is up $2.1 trillion. The total cash equivalents grew at an annual rate of 3.85% while the total debt grew at a third at 1.26%. If you look at the two decades prior to 2009 (1989-2008) it grew annually by 7.01%, or well over five-fold of the last decade. Total cash equivalents increased at only a slightly higher pace than what it did annually – 4.45% over the 31 years.

The lesson learned is to not increase debt relative to other parts of the balance sheet, which translates to most purchasing on a macro scale being funded by positive cash flow rates. The anemic growth of debt to overall GDP is best represented by the “volcano” chart below.

Household Debt to GDP

One of our favored corporate metrics is the financing gap which helps in viewing the ability of corporations to access the capital markets or how desperate they may be to fund daily operations. Currently they are not in great need of financing, which is also corroborated by the lack commercial paper outstanding, which is still 50% below the all-time high in June 2007.

US Corporate Financing Gap: 4-Quarter Moving Average

When corporate financing is negative, it translates parochially to a non-stressed corporate regarding the desire or need for capital.

Central banks pivoted in 2019 to the point at which over 60% of central banks engaged in monetary easing. In fact, the share of central banks easing is approaching its 29-year high set in 2008/2009.

Central banks accelerated easing in the 3rd quarter

As such, the G10 Policy Rate has been slightly lowered. However, in the longer view, the tidal wave of lower rates may be entering the worries about undercurrent and riptide warnings since there is not much more room to go. Many may cite the negative rates changing the horizon limitations, however, many who have engaged in that have come to realize negative rates have a negative connotation…who would have ever thunk it?

G10 Major Currency Central Bank Rate (%)

Conditions have all been lowered and seem to offer a trampoline effect that will begin in 2020. The standalone, according to Goldman Sachs Financial conditions, is China which stands alone in tighter overall financial conditions than others. This means there is a quite a bit more room for them to operate should they continue to struggle.

Goldman Sachs Financial conditions

Source: Goldman Sachs & Bloomberg

One of the last areas we would concentrate on next year is commodities. There are multiple longer-term charts showing their struggle and cyclical opportunities, however, the relationship with the U.S. dollar is signaling a timelier buy signal, in our opinion.

US dollar index/S&P GSCI Commodity

The red circles in the chart above point to an inflection point in which the one-year and two-year returns seem to have generated nearly all the positive periods in the last three decades.

Annualized Returns S&P GSCI

Annualized returns S&P GSCI

Past performance is not indicative of future results.

So, as we count our blessings this year and concern ourselves with the future, consider that crises are constant and create choices where the counteractive often cultivates more contentment.

“C” you in 2020!


CRN: 2019-1209-7855 R

This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the Disclosures webpage for additional risk information at commentary-disclosures. For additional commentary or financial resources, please visit


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