Debt End
Here we go again. The U.S. Government is facing a debt ceiling and it needs Congressional approval to print more money. There are no politics in this situation – both Democrats and Republicans have spent us into a very difficult and potentially dangerous situation.
Should our government fail to pay its bills on time, it could potentially be very dangerous to the preeminence of the U.S. Dollar. It could also raise the cost of money to the U.S. Government which, in the face of huge deficits, could be very destructive.
As the world transitions to electric vehicles, we are learning that EV’s are not 100% environmentally friendly. Lithium is mined primarily in Australia, Chile, China, & Argentina. Producing these batteries is highly pollutive. In fact, an electric car, when including its battery production, can emit 80% of the emissions of a gasoline powered car. The world’s number one carmaker, Toyota, agrees as it is spreading its future vehicles between hybrid, hydrogen, and battery powered EV’s.
The major U.S. tech companies have announced significant layoffs. From Alphabet to Amazon to Salesforce, industry executives have made it clear that pandemic era spending in tech is slowing.
With labor costs rising across the country and interest rates at currently elevated levels, an economic slowdown, in our view, is inevitable. The wild cards are the war in Ukraine, the China – Taiwan tensions, oil prices, and the dysfunctional western political environments – all in all, a pretty challenging environment.
A clear positive has been the reopening of China and movement towards market normalization as seen in the recent rise in Chinese shares. Even embattled Alibaba co-founder Jack Ma has resurfaced in the public eye causing investors to believe the PRC is warming to private sector growth.
Last year we believed inflation was not transitory. Even with recent signs that inflationary pressures may be easing, there’s a long way back to the Federal Reserve’s goal of 2%. Continued tightening by the Federal Reserve will be necessary to bring inflation to this goal. The monetary easing of the last decade is being unwound causing money supply growth in the U.S. to turn negative.
We will continue to monitor these various factors. They will determine how difficult markets may be in the face of higher interest rates and labor costs.
Well managed businesses trading at reasonable prices ultimately result in good investments. This is the essence in equity investing – patience is as well. One cannot sacrifice long term success by short term thinking. As for the Nation’s debt, John Adams said “There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt.”
Stay safe & well.
As always,
Seymour W. Zises
