The Bond Age
The U.S. bond market is managing a massive amount of debt issuance, reflecting an era of record-high borrowing in America. This growth in debt, driven by enormous government spending, affects U.S. interest rates costs and for the first time, interest on the national debt exceeds that of defense spending.
Federal outlays in 2024 total $6.5 trillion, which amounts to 23.1% of gross domestic product. Growth in spending on items like Medicare, interest costs, and practically everything else has helped drive those increases.
Both issues above must be addressed in the next few years as they truly represent a threat to our economy. At some point we will wake up to a crisis. Until then, the music plays on.
Severe weather is stirring concern among leading insurance firms. As several insurance companies are leaving certain “risks”, smaller ones are emerging, and with their nimbleness are taking advantage of customers who are in desperate need of coverage.
This weather is also causing power companies to deal with outages. It has been said that temperatures considered to be a generation ahead are now expected in a decade.
On the inflation front, in June, inflation rose 3% in from a year ago, making three straight months of slowing inflation, the latest Bureau of Labor Statistics report showed.
The Federal Reserve has a target of 2%. Chairman Powell may cut interest rates .25% sometime in the next few months IF he sees an indisputable trend towards his goal. So far, it does appear that we are heading in that direction.
Technology company earnings seem to be slowing. Microsoft reported slowing cloud revenue and Wall Street reacted negatively, which was expected. However, with our growing reliance on cloud-based solutions, we view this inevitable quarterly miss also as an opportunity. Consequently, we have added to our Microsoft position in our Core Equity Portfolio.
Oil prices (West Texas Crude) were at $100 in 2014. Today the price stands below $80. Americans benefited from $60 oil as recently as 2021 coming through the pandemic. A rare positive from a potential slowing of world economies would be a drop in oil prices, which would be welcome by the overburdened consumer. Geopolitical uncertainties play a role in oil pricing, making absolute predictions uncertain.
When I think about our society which is built in large measure on materialism, I often think about one of my favorite quotes by Pablo Picasso, “I’d like to live as a poor man with lots of money” which is certainly very thought provoking.
Have a wonderful summer.
Stay safe and well.
As always,
Seymour W. Zises
