The Debt Ceiling... And Other Tidbits

May 18, 2023

As we wind down May and head to the summer, I wanted to take a minute to discuss several topics. Below are observations in no particular order:

DEBT CEILING: While it’s always helpful to discuss our national debt, we must remember this is a political show more than anything else, as both parties have a horrendous track record of deficit spending. When the dust clears, neither party will want to be blamed for causing chaos in the financial markets and economy that a debt default would bring, and more importantly risk losing their seats in the ’24 elections. I look for token progress that both sides can brag about.

 

ECONOMY: At their last meeting, members of the Federal Open Market Committee (FOMC) that is responsible for interest rate policy, predicted we would likely suffer a recession due to the historic rise in rates. While this is big news and several sectors of the economy are clearly in recession, the economy as a whole continues to chug along. In all my years watching the economy, this has been the most predicted recession ever.

 

TROUBLING FACT: Target announced they’re experiencing record shrinkage (meaning loss of inventory, mostly theft) and this year losses will top $1 billion dollars, and the entire retail industry is expecting over $100 billion in losses due to shrinkage. There are multiple reasons from retailers for the cause…not having enough employees, to cities refusing to prosecute theft crimes. Compounding the problem are groups called Organized Retail Crime organizations which steal and then resell the items on various internet sites. In my opinion, small crime leads to bigger crimes and the only way to solve it is to aggressively prosecute anyone who is doing it. Meanwhile, the rest of us are forced to pay higher prices as companies must offset these losses.

 

INTEREST RATES: Last month interest rates began to drop after the FOMC said they would pause further rate hikes to see the impact of past increases. This led to predictions that the Fed would begin reducing rates by year end. Until the economy shows clear signs of further slowdowns, I don’t think the Fed will lower rates…at best they will leave them the same and may even institute further hikes.

 

FINANCIAL MARKETS: In many cases, the bond market and stock markets give us a mixed message. Stocks are predicting a better economic picture and bonds predicting more struggle. I would not expect a big move one way or another until we get a clearer picture. That doesn't mean our money isn’t working, we are getting paid dividends on our stocks and interest on our bonds and money markets.

 

We continue to manage in an uncertain environment, focusing on our long-term goal of income through dividends and interest. We believe this is the prudent thing to do in times of uncertainty. If you have any questions please let me know, and don’t hesitate to share this with others who may be concerned about the future and their personal strategy.

 

From my family and our entire organization, we wish you and your family a very blessed summer, full of LIVE BRILLIANTLY moments and memories!!!