In case you weren’t watching, we have been down for a couple of weeks and it really didn’t amount to much with the Standard & Poor’s 500 stock-index holding above 4100.
Attention currently is on what the Administration and Congress will do with the debt ceiling.
You would assume it will be raised, but the real question is whether those in Washington DC will have the character to do something with the amount of debt we now have to finance.
There was the call to spend to overcome the impact of the pandemic.
There were those who floated Modern Monetary theory that ignores inflation and just prints money.
The folly of such is beyond the pale, but it actually was run up the flag pole.
The Fed did not recognize the problem and continued to stimulate while inflation was beginning and then stipulated that it was transitory.
Once they finally got to work they moved interest rates up 500 basis points in less than a year.
This is all to repeat what I’ve said before - there will be no soft landing.
The real debate is when the recession will start and how long will it last.
It appears to me that it should hit in the fourth quarter of this year. Recessions usually don’t last as long as many think.
As such, I would suggest that the equities markets could be higher at the end of the year than where we are today.
What concerns me though is the party may be coming to an end for a while as it relates to any significant upside.
We may in fact run into the same situation we encountered in 2000 where it took a decade to break out a move up.
This could come from a realization that all the spending we have done will have to be repaid.
What a concept - paying off what you borrow. Moreover, it will be paid back at higher rates than the last 10 years.
Does anyone remember the sequester?
We were forced to reduce the whole budget by 10% a year if we didn’t balance the budget.
That was across the board, including sacred cows like defense.
The ability to spend without consequence will come home to roost.
Politicians on both sides of the aisle don’t know how to get elected except to tell constituents how much money they will get from the government.
I wonder what theory they will come up with this time to justify what everyone knows is economically unreasonable.
As such, I suggest that it certainly is time to have dividend-paying stocks that will at least pay you something while you wait this out.
You also can get interest-bearing instruments that will pay more than inflation.
There certainly are times that this actually becomes a means to maintain instead of legalized gambling.
I am not sure the young at heart will appreciate that environment.