Seven Prophets
“We haven’t seen this kind of debt since the Napoleonic Wars”, said World Economic Forum President, Borge Brende. Brende’s view was that governments, not just the United States, need to consider how to reduce debt and take the right fiscal measures without pushing economies into recession.
We stated in previous letters that taxes will have to go up to reduce our deficits. The question is, which taxes and by how much. Policymakers must balance fiscal health with the risk of fiscal tightening at the exact time economic growth is stalling.
The stock market has had incredible resilience in the face of geopolitical tension, government gridlock, and interest rates that are higher than many would like. U.S. businesses continue to feel positive about the bright spots in the economy like the high level of employment and the strength of the consumer. However, as the consumer continues to spend, they are saving less as inflationary pressures eat away at buying power.
Despite the call for protectionism in some of our industries, we are concerned about tariffs being too heavy-handed. In the interest of national security however, there has been a unified call to protect our intellectual property in the semiconductor space. However, we do not want to enter a situation where serious retaliation results in a trade war.
Yields on treasuries ticked up slightly as “higher for longer” was the money mantra. There is a chance that Chairman Powell may cut interest rates one or two times before November, but only if the data shows some slowing of inflationary trends.
Keep in mind that oil prices are a big question mark coming into the summer. If oil prices rise, it might be difficult for inflation to abate. Some of the price control lies in the hands of the Saudis thus a political overture towards a security pact might be driven by Biden’s desire to keep the Saudi’s cooperation on oil prices.
Walmart has reported that more well-heeled customers are coming in to shop for their lower priced food items, possibly an indication that inflation is a problem for more than just the lower income people as more begin to feel the inflation pinch.
As we move into the election the inflation topic will be front and center. Clearly the border, Ukraine, the Middle East are important as well. At the end of the day most people vote with their wallets – as President Clinton said in his 1992 election campaign, “It’s the economy stupid”.
Artificial intelligence is all the rage as companies leverage the technology to become more efficient. The opportunity as well as the danger in this technology is greater than any we have ever seen.
“Profits” of the magnificent seven (Microsoft, Amazon, META, Apple, Alphabet-Google, Nvidia and Tesla) have risen 48% year-over-year during 1Q2024, whereas profits for the aggregate market jumped 6% The dispersion is highlighted in that analysts YTD have lowered 2024 EPS estimates for the S&P 493 by 2% but lifted estimates for the Magnificent 7 by 8%.
Artificial intelligence is not a substitute for human intelligence, it is a tool to amplify human creativity and ingenuity; an intelligent quote, that is certainly not artificial. 😊
Enjoy the weather and be well and safe.
As always,
Seymour W. Zises
