Weekly Economic and Stock Market Commentary – June 14, 2021
As for the stock market specifically:
This week brings us the quarterly quadruple witching event. This frequently results in more volatility than usual, but that remains to be seen. The good news is that all the indicators are on offense.
I decided to take some time today to write about our federal debt. I can remember when one side would decry the other party’s “billion-dollar budget deficits as far as the eye could see.” At this point, a deficit of a billion-dollar deficit would be chump change.
The past 12 years frequently showed increasing tax revenues for the federal government, and, yet the deficits continue to grow. In English, spending grew faster than revenues. In addition, interest rates (ie. carrying cost of debt) continued to drift down for government, and private debt.
I believe the Federal Reserve, in conjunction with our “elected friends in Washington,” came to an agreement that the Federal Reserve would act as a buyer of any debt authorized by Congress. The Federal Reserve is allowed to create money on a whim, and the rest of us see the impact in higher prices. More on this below.
An aggravating factor is that we are in a period of reasonable economic growth, so these programs aren’t likely to be “temporary.”
We now are in WEALTH ACCUMULATION for all market aspects.
Remember, Xs mean OFFENSE or wealth accumulation, while Os mean DEFENSE, or wealth preservation.
Below is where our indicators stand as of June 11, 2021 (Courtesy Dorsey, Wright, and Associates).
On a general note:
The Treasury Department announced budget figures for the first 8 months of the fiscal year. To nobody’s surprise, the number came in at a record level. The deficit came in at $2.1 trillion dollars. Tax collections through May came in at a record level of $2.6 trillion dollars. That was a 29% increase over fiscal 2020. Spending rose 20%, but from a higher baseline to a level of $4.7 trillion dollars. May’s numbers were skewed this year due to the extension of the tax deadline until May 15th.