Full Faith and Credit
It is not enough that we citizens worry about crime, inflation, health care, China, and gas prices; now our government is facing off in a debt default crisis. It should not be a political game when it comes to our nation’s credit status. It is also not reasonable to think that the U.S. can print money endlessly without serious repercussions. As of April, the total U.S. national debt was $31.46 trillion.
Ultimately, The United States will pay its debts but the noise surrounding the negotiations will be dramatic. In the past, these types of shenanigans would never be contemplated.
Debt levels have become a bigger drain on businesses as well with, corporate bankruptcy filings more than doubling year over year in 2023 to 236 according to S&P. This is the highest number of bankruptcies in the first four months of any year since 2010 with companies in the consumer discretionary sector logging the most failures.
When everyone in the room is thinking the same thing, no one is thinking. During the week of May 14, interest rates crept up especially on short term paper. The yield curve remains very inverted with short-term interest rates approximately 2% higher than the longer-term interest rates. Usually, this type of yield curve forecasts a recession. In all probability, a recession will hit us later this year, the severity of which is anyone’s guess, yet we are prepared in our portfolio positioning.
According to the Conference Board, real GDP growth is forecasted to slow to 0.7% in 2023 and fall to 0.4% in 2024. In our view, if we avoid a recession, it will be by a narrow margin. Just the fact that credit is so much tighter, and less available, will make overall growth a lot more difficult. Chances are more of the smaller banks will have problems so this will also affect credit.
We are concerned about the direction of oil prices. The US oil benchmark increased 1.7% in the last week to $71. That is the first weekly gain in more than a month.
Global demand is expected to exceed supply by two million barrels per day in the second part of 2023 with China accounting for a substantial portion of it. Additionally, the U.S. Government announced this week that it would purchase up to 3 million barrels of crude oil to replenish its depleted strategic petroleum reserve. On the side of supply, wildfires in major oil producing regions of Canada and the seizure of oil tankers by Iran pose threats of disrupting oil flows.
Keeping a steady hand in these markets is critical. Research must always lead the investment decisions. As Benjamin Franklin said, “An investment in knowledge pays the best interest.”
Artificial intelligence (AI) is all the rage. Congress will find a way to steer its course, but it is guaranteed to complicate implementation, due to the fear of the ramifications of this astounding new technology.
As we enter the summer shortly, the world’s problems are on everyone’s mind.
We are optimistic about the future despite Yogi Berra’s infamous quote. Yogi said, “The future ain’t what it used to be.”
I am not exactly sure what Yogi meant but he was right!
Wear sunscreen and stay well.
Seymour W. Zises
