Womack
Weekly Commentary
April 23,
2018
The
Markets
The world is in debt.
The
April 2018 International Monetary Fund
(IMF) Fiscal Monitor reported global debt has reached a historically high
level. In 2016, debt peaked at 225 percent of global gross domestic product (GDP)
(the value of all goods and services produced across the world). Public debt is
a significant component of global debt. The IMF
wrote:
“For
advanced economies, debt-to-GDP ratios have plateaued since 2012 above 105
percent of GDP – levels not seen since World War II – and are expected to fall
only marginally over the medium term…In emerging market and middle-income
economies, debt-to-GDP ratios in 2017 reached almost 50 percent – a level seen
only during the 1980s’ debt crisis – and are expected to continue on an upward
trend.”
There
are numerous reasons high levels of government debt (the amount a government
owes) and significant deficits (the difference between how much a government
takes in from taxes and other sources and how much it spends) are a cause for
concern:
·
Higher interest payments. Governments typically finance debt by issuing
government bonds. When bonds mature, the government issues new debt. If
interest rates have risen, the cost of that debt increases. As a result, high
debt levels can make tax hikes and spending cuts a necessity, explained the Committee for a Responsible Federal Budget.
·
Lower national savings and income. You may have heard the phrase, “Robbing Peter to pay
Paul,” which means taking money from one source to pay another. When a country
runs a deficit, a similar thing happens. In The
Long-Run Effects of Federal Budget Deficits on National Saving and Private
Domestic Investment, the Congressional
Budget Office explained, “…a dollar’s increase in the federal deficit
results in…a 33 cent decline in domestic investment.”
·
The tax lag.
In his book, Do Deficits Matter?,
Daniel Shaviro suggests sustained deficit spending creates a ‘tax lag’ by
shifting responsibility for current spending onto future generations.
The
IMF Fiscal Monitor wrote, “countries
need to build fiscal buffers now by reducing government deficits and putting
debt on a steady downward path.”
Last
week, the interest rate on 10-year U.S. Treasuries rose above 2.9 percent,
which raised concerns about inflation. Markets moved higher early in the week
and tumbled later in the week. The major U.S. stock indices finished the week higher.
Data as of
4/20/18
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500 (Domestic Stocks)
|
0.5%
|
-0.1%
|
13.3%
|
8.3%
|
11.3%
|
6.8%
|
|
Dow Jones Global ex-U.S.
|
0.3
|
0.1
|
16.4
|
3.5
|
4.4
|
0.2
|
|
10-year Treasury Note (Yield Only)
|
3.0
|
NA
|
2.2
|
1.9
|
1.7
|
3.7
|
|
Gold (per ounce)
|
-0.5
|
3.1
|
4.3
|
3.8
|
-1.3
|
3.8
|
|
Bloomberg Commodity Index
|
0.6
|
1.9
|
6.4
|
-3.9
|
-7.3
|
-8.2
|
|
DJ Equity All REIT Total
Return Index
|
-0.8
|
-8.6
|
-6.1
|
0.9
|
5.4
|
6.1
|
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg
Commodity Index returns exclude reinvested dividends (gold does not pay a
dividend) and the three-, five-, and 10-year returns are annualized; the DJ
Equity All REIT Total Return Index does include reinvested dividends and the
three-, five-, and 10-year returns are annualized; and the 10-year Treasury
Note is simply the yield at the close of the day on each of the historical time
periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com,
London Bullion Market Association.
Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. N/A means not
applicable.
are you an INsect Gourmet? Throughout history, people have eaten bugs. According
to National Geographic,
hunter-gatherers probably learned which insects were edible by watching birds. People’s
appetite for bugs didn’t disappear as they became more civilized. Pliny, a
Roman scholar, wrote beetle larvae fed a diet of flour and wine were a favorite
snack of aristocratic Romans.
The tradition of eating insects continues today.
According
to National Geographic, “Gourmands in
Japan savor aquatic fly larvae sautéed in sugar and soy sauce. De-winged
dragonflies boiled in coconut milk with ginger and garlic are a delicacy in
Bali. Grubs are savored in New Guinea and aboriginal Australia. In Latin
America cicadas, fire-roasted tarantulas, and ants are prevalent in traditional
dishes.”
Reuters
said in Germany, Netherlands, and Belgium, shoppers can buy burgers made of
buffalo worms (the larvae of buffalo beetles) at the local grocery. It’s a
visually pleasing product, according to one of the burger company’s founders,
because the insects don’t show.
In
North Carolina, diners can order a tarantula burger, described as “…a hamburger
topped with a crunchy full-grown, oven-roasted tarantula.” It comes with a side
of fries – and possibly a drink to wash it down as fast as possible. Other
restaurants across the United States offer fried silkworm larvae, red ant
salad, cricket crab cakes and cricket pastry, and grasshopper rolls, according
to Reuters and Spoon University.
Bon appetit! (Or should that be bug appetit?)
Weekly
Focus – Think About It
“Then
I say the earth belongs to each of these generations during its course, fully,
and in their own right. The 2d. generation receives it clear of the debts and encumbrances
of the 1st., the 3d. of the 2d. and so on. For if the 1st. could charge it with
a debt, then the earth would belong to the dead and not the living generation.
Then no generation can contract debts greater than may be paid during the
course of its own existence.”
--Thomas Jefferson
Best regards,
Womack Investment Advisers, Inc.
WOMACK INVESTMENT ADVISERS, INC.
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*
These views are those of Carson Group Coaching, and not the presenting
Representative or the Representative’s Broker/Dealer, and should not be
construed as investment advice.
*
This newsletter was prepared by Carson Group Coaching. Carson Group Coaching is
not affiliated with the named broker/dealer.
*
Government bonds and Treasury Bills are guaranteed by the U.S. government as to
the timely payment of principal and interest and, if held to maturity, offer a
fixed rate of return and fixed principal value.
However, the value of fund shares is not guaranteed and will fluctuate.
*
Corporate bonds are considered higher risk than government bonds but normally
offer a higher yield and are subject to market, interest rate and credit risk
as well as additional risks based on the quality of issuer coupon rate, price,
yield, maturity, and redemption features.
*
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities
considered to be representative of the stock market in general. You cannot
invest directly in this index.
*
All indexes referenced are unmanaged. Unmanaged index returns do not reflect
fees, expenses, or sales charges. Index performance is not indicative of the
performance of any investment.
*
The Dow Jones Global ex-U.S. Index covers approximately 95% of the market
capitalization of the 45 developed and emerging countries included in the
Index.
*
The 10-year Treasury Note represents debt owed by the United States Treasury to
the public. Since the U.S. Government is seen as a risk-free borrower,
investors use the 10-year Treasury Note as a benchmark for the long-term bond
market.
*
Gold represents the afternoon gold price as reported by the London Bullion
Market Association. The gold price is set twice daily by the London Gold Fixing
Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy
ounce.
*
The Bloomberg Commodity Index is designed to be a highly liquid and diversified
benchmark for the commodity futures market. The Index is composed of futures
contracts on 19 physical commodities and was launched on July 14, 1998.
*
The DJ Equity All REIT Total Return Index measures the total return performance
of the equity subcategory of the Real Estate Investment Trust (REIT) industry
as calculated by Dow Jones.
*
Yahoo! Finance is the source for any reference to the performance of an index
between two specific periods.
*
Opinions expressed are subject to change without notice and are not intended as
investment advice or to predict future performance.
*
Economic forecasts set forth may not develop as predicted and there can be no
guarantee that strategies promoted will be successful.
*
Past performance does not guarantee future results. Investing involves risk,
including loss of principal.
*
You cannot invest directly in an index.
*
Stock investing involves risk including loss of principal.
*
Consult your financial professional before making any investment decision.
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Sources:
http://www.imf.org/en/Publications/FM/Issues/2018/04/06/fiscal-monitor-april-2018 (Click on Chapter 1, Full Text of Chapter 1, page 1)
http://www.crfb.org/blogs/marc-goldwein-national-debt-yes-rising-annual-deficits-threaten-us-economy
http://online.barrons.com/mdc/public/page/9_3063-economicCalendar.html (Click on “U.S. & Intl Recaps,”
then "Geopolitical concerns ease")
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