Capital Ideas Newsletters


The Debt End

The government is revisiting discussions about raising the debt ceiling. What about a conversation regarding tax incentives for investment and savings as well as infrastructure rebuilding? What about creating cost containment programs within Obamacare or restructuring other entitlement programs?

With short-term interest rates at or near zero for an extended period, it is clear that monetary policy alone cannot cure economic ills. We must have our executive and legislative branches working together to bring new ideas to the forefront regarding these issues.

China, Japan, Brazil and Europe are all challenged. The world stock markets are as volatile as ever, and the U.S. is having increasing difficulty creating demand. Clearly the “Fed” cannot raise interest rates in this backdrop – or maybe they can, just so they can reduce interest rates back down again if the economy falters!

On the plus side, the nation’s gross domestic product was up 3.9% in the second quarter. This was on the heels of an anemic 0.6% for the first quarter. The rough winter is blamed for the poor first quarter, however, in total for the first half, it looks as if the U.S. did slightly better for this time period than last year.

The American consumer has continued to spend (personal consumption represents about two-thirds of the GDP) at a growth pace of 3.9% according to the Commerce Department. Residential construction expanded at a 9.3% clip for the second quarter while non-residential construction grew at 6.2%.

All of the numbers suggest that the U.S. is doing fine. The worrisome aspect is that the companies in the S&P 500 (excluding financial) have lost ground in sales growth. In the second quarter, there was a reduction in revenue growth across the S&P by 3%. Sales growth during the third quarter will be critical to seeing if there is an inflection point in this trend.

The market backdrop has been weak, with biotech and health-related shares leading this slide – along with an already depressed energy sector. This trend has hurt the stock market with the S&P down 7.3% as of this writing. Our diversified theme has protected many of our portfolios from the market carnage. We are, after all, always sleeping with one eye open.

We believe that the U.S. is the best place in the world to invest. Money from all continents should continue to flow here. We also believe that interest rates are not going up. Very few debtors can afford to pay more for renting money – including the U.S. of A!

William S. Kilroy said, “You have to deal with quality. No matter what it is, a friend, a house, a horse, if you stay with quality, it will protect you”.

That is our job, and we take it very seriously.

Have a wonderful autumn.

Seymour W. Zises

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