As the shit show continues on both the domestic and foreign fronts, I am getting less and less comfort placing hope on the vote.
Accountants, like managers at all levels of business, see trucks comin' at us at miles. The better of us take early actions to avoid head on collisions. But others and some spectacularly so, take little or no actions and somehow when speed and momentum can no longer be effectively altered are surprised when they hit head on. I am afraid that later situation is at hand for the US and perhaps the globe at large.
Economies do not turn on a dime and changes that could help get done too little and too late. So it is with the Federal Reserves decision to wait until September to cut interest rates. Even then, I think it is very p[ossible they will take the age old incremental approach and just go with 25 basis points. Going higher to 50 or even 75 is not impossible but sudden moves like that tend to spook markets as they confirm something indeed is seriously amiss and the Fed is panicking.
A look at the historical rates says that 5% is not all that high but in the context of the enormous debt burden is is and can't go much higher. Add to that a waning interest by foreign nations to buy and hold the US Bond and sooner or later even with a lowered rate they will go up again under the market forces demanding higher rates of return for the lower quality bond…by lower quality I simply mean higher risk. The USD just ain't what she used to be, sung to the lamenting song The Old Gray Mare.
It is usually fortuitous that we are close to a National election and can kick the bums out replacing them with new bums or even decent national managers. But so much is baked into this USA cake that my hope for the vote is now downgraded to getting a change in tone bit little expectation for a change in any meaningful way like reductions to spending, trimming the size of government and seeking peace as a national strategy. It appears to this observer that lowering interest rates will bring back inflation, not lowering them will start the QE flowing, continued deficit spending will require QE too and between Israel and Ukraines and a dozen other failed foreign policies plus the huge arms lobby more war is the future.
No matter who is at the helm after the November election, the US is in for some hard times. My hope is now hoping for a Blue suit rather than a Gray suit…it's just a change of clothes.
I have enough humility to want to be wrong. But I am looking down the road and see a big truck coming right at us. Plan accordingly.
Best,
Donn Marier
DM-Your Own CFO