June 4th, 2023
On Friday, at the 11th hour, President Biden and House Speaker Kevin McCarthy reached a “compromise” deal to “suspend” the Country’s debt limit, for two years, so that the Country would not default on its massive 32.4 Trillion Debt.
Wall Street, which had been assumming all along that a deal would be reached somehow before the early June deadline, set by Treasury Secretary Yellen, staged a strong 700 point rally to close the week on a very positive note.
The question is now that the debt limit debate has been postponed for another two years, is the bull market ready to resume? Or, is Friday’s rally, just the final blowoff, and a short covering rally? Will this rally continue, in the coming weeks, led by the usual collection of high tech winners, such as Apple, Microsoft, and Nvida?
Or, will economic reality of a global slowdown start to throw a wet blanket on the party? Will these higher mortgage rates, and car loan rates, cause consumers to curtail their spending?
The Trillion Pound elephent in the room is the fact that over the next two years the federal debt will increase by at least another $1 Trillion Dollars each year and that interest rates will continue to be elevated.
So, in two years we will probably have a $35 Trillion Dollar national debt, and paying 4% interest will mean an additional budget expense of at least $600 Billion. That is equal to the defense budget, and will crowd out any other major investment or infrastructure programs.
From my vantage point the claims that this budget deal is a step in the right direction of reducing the Country’s debt problems, is a case of “wishful thinking.” Even before the ink was dry on the deal, leading Senators, cried out for the urgent need for increased Defense spending to counter potential conflicts with China, and Russia and the war in Ukraine.
How much new spending will it take before we are facing over one Trillion Dollars a year in interest expenses? That could be unsustainable and lead to another financial crisis.
Is it too late to join the technology party, or are we heading into another 2000-style market top? Stay tuned.