Here’s the news of the week – and how we see it here at McAlvany Wealth Management:
1. As we repeatedly point out, things are not always as they seem. Durable goods orders were up, and up big for the month of April – 2.9% to be exact. As we all know, that’s yet another sign of recovery – except that when you subtract from transports the civilian aircraft component (the Boeing 787 Dream liner), which added 228%, you were actually negative 1%.
2. National Debt tipped the scales at 13 trillion. Isn’t that a lucky number? As debt levels accelerate at a 15% annual rate, we have catastrophically engaged the power of compound interest. If you earn interest at 15% you double your money in about 5 years. If you are adding new debt at that rate, you are in trouble. This week, Bond Guru Bill Gross suggested, “The burden of debt can take decades to accumulate, but only a few short months to change course into crisis.” Bottom line: real and reasonable concern is growing amongst the bond crowd that the game is in the final inning. A huge quantity of the debts that have been issued, both corporate and governmental, will simply go unpaid. Linguistic check: Restructuring (extending the terms, adjusting the balances etc.) is the new default.
Next week, a look at earnings, municipal mayhem, and currencies that are not so pretty right now – (it won’t be a dollar rant).
Staying the course…
Have a great Memorial Day weekend!
VP Investment Management
President and CEO