Broker Check

‘A rose by any other name would smell as sweet…’

August 24, 2023


         Juliet is in love with a handsome young man - who happens to be the oldest son of her father’s sworn enemy. Nice plot touch for the late 1500s. Romantic. Yet beneath the surface lies intrigue, deception, falsehoods, and betrayed friendship. Also lying by any number of officials.


         Our fearless Fed has apparently engineered the perfect economic landing. Rates were raised. Unemployment did not rise. Lending has eased but banks are still pursuing good lenders. Inflation’s rate of increase (delta) has slowed just as they told us.

We should be happy and proud to have such omniscient leadership. Going into an election cycle, the Fed has always maintained stability to ensure ‘domestic tranquility’.


What could go wrong? The following are like torches on Juliet’s walk from the friar’s cell. They illuminate but do not indicate the way. Whether you take them as cautionary or irrelevant depends upon your point of view. As with all statistics, they can reveal and disguise, they can provide light while deepening the darkness.


Interest expense on government debt in the US is at an all-time high: 17% of the US debt vs. GDP and 24% of all debt (state and local) vs. GDP. Nearly $1T this year.


Excessive debt is a tax on future growth: as Hyman Minsky calls it, ‘Ponzi finance’. When tax receipts fall as debt rises, standards of living decline. Either more money is printed or more taxes are imposed – or both. We have had three years of billions in new spending with very little new revenue generation.


The economy lost 558,000 jobs last month. While unemployment dropped to 3.5%, an all-time low, most jobs filled are now in service: food, mechanics, leisure workers. These are both part-time and the first to be laid off.


40% of the stocks on the Russell 2000 are losing money, another new ‘high’. A mere seven stocks in the universe of US markets are driving the indices: S&P 500, Dow & Russell. 7 out of 7,000+. New capital creation via the markets is non-existent.


46% of US households do not have enough in savings to meet one week’s emergency cash needs, $400. US consumer debt exceeds $1T for the first time. The cost for a home loan, car loan or carried debt on credit cards has risen to heights not seen in more than two decades. Those government checks and handouts are now over.


Trucking deliveries & orders, warehousing, commercial property leasing, leisure spending and family travel are each at new lows since 2008.


The federal government employs 24 million, nearly 20% of the total workforce. These people do not get laid off, do not work parttime and receive significant benefits packages that only grow more costly. This both stimulates the regional economies dependent upon government contract and destabilizes other hiring regions as workers know ‘where the money is’.


Knowing this trite little phrase also is indicative of national mobility. CA has lost its net population for three out of the last four years. TX & FL have seen massive population growth. As have the 12 states with no income tax and the 18 with very low-income tax rates.


I have met the previous governor of North Carolina and the current Treasurer (17 years and still there). Both told me of their pride in reducing the state’s debt and how this allows them to reduce the state income tax. It was a flat 4% when we moved here - now it is a flat 2% and he plans to eliminate it entirely in three years. Once he has paid off all remaining state debt. We have a AAA bond rating…no prizes for guessing our annual economic, new business formation or population growth rates.


Federal tax receipts have dropped significantly while spending has increased by a far larger figure. It’s called deficit spending or QE for a reason. When you spend more than you earn, you go into debt. The Federal government represents 20% of the US labor force. These folks will become a fiscal drag on the economy.


Inflation robs citizens of wealth while passing it on to governments – of all colors, shapes, and sizes. Including corporate governance. Everyone knows how inflation is hurting them at the grocery store and the gas pump. Few know that governance knows inflation growths the bucket of funds available for taxation. So, what if the currency drops? We are the house! Ya gotta pay to play…


Despite these rumblings of water falling over a cliff nearby – very nearby – stock analysts pin higher and higher valuations upon their favorites in hope that the music will continue playing. As the band plays on. Stocks tend to follow deficits.


Are we at a town’s summer gazebo listening to the pleasant sounds of a small orchestra? Or are we in the main ballroom of the Titanic enjoying a final glass of champagne as the ice rips our hull open?


We, the Cassandras of the world, are often ignored. Until we are found correct in our assessments. I shall remain very cautious as your financial advisor.


The penultimate lines in Romeo & Juliet are discerning today:


         A plague! A plague!

         A plague upon both your houses!


Eat wisely

Sleep well

Love with Abandon!